Dispute Settlement
Panel Cases to which Canada is a Party
Canada/Brazil WTO Panels - Aircraft
Dispute Settlement Body (DSB) - Meeting in Special Session on August 20, 1999
Brazil -Export Financing Programme for Aircraft: Report of the Appellate Body
Canadian Statement to the DSB, August 20, 1999
Canada welcomes the adoption of these Reports and wishes to thank the members of the Panel, the Appellate Body and the Secretariat for the important contribution they have made to the development on international trade law. We also wish to acknowledge the cooperation of our Brazilian colleagues in this process.
Canada is pleased that, consistent with the Panel and AB Reports, PROEX subsidies will cease on all regional aircraft delivered after November 18 of this year. In this respect Canada notes that it is a well-established principle of international law, reflected in GATT/WTO jurisprudence, that private contractual obligations cannot be invoked to excuse compliance with international obligations.
We look forward to collaborating closely with Brazil in the implementation of these Reports and the Reports on Canadian measures in the aircraft sector. We have already been in touch with Brazilian officials and are glad that they agree on the need to consult on our respective plans for implementation in the interests of definitively resolving these disputes and avoiding further litigation.
We also look forward to receiving, within the next thirty days, Brazil's first statement to the DSB regarding its intentions with respect to implementation, pursuant to Article 21.3. We would agree to having this statement conveyed in writing, rather than convening a special DSB meeting for this purpose.
Finally, we would note that the second sentence of Article 21.6 provides that the issue of implementation may be raised at the DSB by any Member 'at any time' following the adoption of the recommendations or rulings. This provision provides to the DSB the full authority that it requires to exercise surveillance functions with respect to adopted panel or Appellate Body reports.
Canada - Measures Affecting The Export of Civilian Aircraft: Report of The Appellate Body
Canada welcomes this Report and wishes to express its appreciation to the members of the Panel, the Appellate Body and the Secretariat for the effort, dedication and expertise they have brought to this important task, which is indispensable to the development of a rules-based system of international trade. Canada also wishes to thank Brazil for its cooperation in this joint effort to resolve our differences through the objective application of WTO rules under the dispute settlement procedure.
Although we cannot hide our disappointment with certain aspects of the decisions of the Panel and Appellate Body, Canada is pleased that these Reports help to clarify certain elements of the rules on export subsidies under the Agreement on Subsidies and Countervailing Measures. We intend to implement fully and faithfully the Panel's and Appellate Body's recommendations with respect to the two programmes -- the Canada Account and the Technology Partnerships Programme -- that were found to constitute prohibited export subsidies as applied to the regional aircraft sector. Pursuant to Article 21.3, Canada will inform the DSB of its intentions with respect to implementation within the next thirty days. This will be done in writing.
Although, as I just stated, Canada appreciates certain clarifications provided by the Appellate Body as to what constitutes de facto export contingency, we do regret that the Appellate Body was not able to provide the level of clarity that Canada sought and which we believe all export-dependent economies require for effective, predictable policy making.
Canada is convinced that implementation of this Appellate Body Report, as well as the Report on Brazil-Export Financing Programme for Aircraft, will be greatly facilitated if the two Parties consult fully and at an early date on their implementation plans. To this end we have already been in touch with the Brazilian authorities, who have responded positively to this initiative. We are therefore hopeful that the Panel and Appellate Body Reports will lead to the early and mutually beneficial resolution of this dispute.
Panels' Fact finding Powers
Canada wishes to draw the attention of Members to the Appellate Body's decision on the fact finding powers of panels, and the authority of panels to draw adverse inferences from the refusal of a party to provide requested information (paras. 181-206).
The Appellate Body introduced this section of its report by noting that the parties' arguments on this issue "raise[d] a number of questions with fundamental and far-reaching implications for the entire WTO dispute settlement system." The Appellate Body's observation applies equally to its ruling on these issues.
The issue under appeal was whether the Panel erred in law in declining to draw adverse inferences from Canada's refusal to provide information to the Panel about the EDC's debt financing activities. The Appellate Body ruled that the Panel did not err in law and it upheld the Panel's finding that Brazil had not established a prima facie case that the debt financing activities of the EDC in support of the Canadian aircraft industry confer a "benefit" within the meaning of Article 1.1(b) of the SCM Agreement. Canada's views on the legal merits and systemic implications of the Appellate Body's ruling therefore are not motivated by Canadian interests with respect to the issue of whether the activities of the EDC challenged by Brazil constitute an export subsidy - Canada prevailed on that issue. Rather, Canada is concerned about the "fundamental and far-reaching implications" of the Appellate Body's conclusions and reasoning "for the entire WTO dispute settlement system."
The principal interpretive issue before the Appellate Body was whether the phrase "should respond" in the third sentence of Article 13.1 imposes a legal obligation on parties to provide information and produce documents requested by a panel. The Appellate Body decided that these words do impose a legal obligation.
Despite it having been exhaustively discussed during the oral proceedings, the Appellate Body Report ignores the fact that this sentence employing the verb "should" is found in a paragraph in which each of the other three sentences contains the verb "shall". The only contextual analysis the Appellate Body provides in support of its conclusion is the statement that:
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"If Members that were requested by a panel to provide information had no legal duty to 'respond' by providing such information, that panel's undoubted legal " right to seek" information under the first sentence of Article 13.1 would be rendered meaningless." (Para. 188 -- emphasis in the original).
The Appellate Body emphasises the word "right" and ignores the equally important word "seek". This emphasis significantly affects the meaning this sentence and its relation to the third sentence. For, if the right of panels is limited to seeking information, which is what the text actually states, then there is no contradiction with the ordinary meaning of the word "should" as employed in the third sentence.
The core of the Appellate Body's reasoning is set out in paragraph 189 of its Report, which states:
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"To hold that a Member party to a dispute is not legally bound to comply with a panel's request for information relating to that dispute, is, in effect, to declare that Member legally free to preclude a panel from carrying out its mandate and responsibility under the DSU. So to rule would be to reduce to an illusion and a vanity the fundamental right of Members to have disputes arising between them resolved through the system and proceedings for which they bargained in concluding the DSU. We are bound to reject an interpretation that promises such consequences."
In order to reach its decision, the Appellate Body has read the word "should" as "shall" and the word "seek" as "require". Canada believes that Members should consider whether the resulting interpretation respects their collective will as reflected in the text of the DSU, and whether that interpretation alters the carefully calibrated balance that the DSU establishes between State sovereignty and international responsibility, and between the rights of complainant and respondent parties.
In addition to attributing to panels the power to require or order the provision of information and the production of documents, and imposing on Members an obligation to provide such information and documents upon request, the Appellate Body's interpretation severs this power and corresponding obligation from the burden of proof. The Appellate Body ruled that a panel can order the production of information from a respondent party, whether on its own motion or at the request of the other party, at any stage during the proceedings, and without respect as to whether the other party has made out a prima facie case. In so ruling, the Appellate Body disregarded the general practice of international tribunals, which was extensively argued by both parties. The Appellate Body has thus attributed to panels powers of discovery that are not grounded in the text of the DSU, and that are free of the checks and balances limiting the exercise of fact finding powers under general international law. Under this interpretation, a complaining party may be able to initiate a case on the basis of unsubstantiated allegations and then request a panel, armed with far-reaching powers of discovery, to carry out a wide-ranging investigation on its behalf. Such a system seems likely to result in an exponential increase in the number on cases brought before panels.
Quite apart from the consequences of this decision for the procedural operation of the WTO dispute settlement system, Canada is concerned about its implications for the principles of legal stability and predictability that underlie a rules-based system. When they negotiated these agreements, Members used the terms "should" and "shall" deliberately to convey different and, they thought, well-understood levels and types of obligation. Ignoring this distinction could introduce major element of instability into all of the WTO Agreements.
Mr. Chairman, having registered these concerns, Canada of course joins with other Members in adopting these reports.
Thank you, Mr. Chairman.
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