World Trade Organization

• Author: International Law Group

A Panel of the World Trade Organization (WTO) has found that Canada has not yet properly implemented an earlier WTO appellate report on Canada's subsidies to its dairy industry. (As for underlying dispute, see WTO Appellate Report WT/DS103/AB/R, corrected as of October 18, 1999; [1999 International Law Update 154]).

The dispute concerns Canada's system of setting up different classes of milk that began on August 1, 1995. With that system, Canada replaced its subsidy payments on dairy products with a permit system that let Canadian processors buy lower-priced milk for export sales.

Upon a challenge by the U.S., the WTO held Canada's system inconsistent with WTO trading rules. Canada, however, introduced other programs to replace the challenged export subsidy. In December 1999, Canada, New Zealand and the U.S. agreed on the reasonable period of time for putting into effect the Panel recommendations. In January 2001, the U.S. and New Zealand asked the WTO to review Canada's new programs.

Canada's new programs left in place the domestic price support mechanism and production quota, but did away with Special Milk Class 5(e), and confined exports of dairy products under Special Milk Class 5(d) to Canada's export subsidy commitment levels. Canada also de-regulated milk for export processing by creating a new category of "commercial export milk" (CEM) which is free from pricing regulations (see paragraph 2.2 of WT/DS103/RW2).

In its most recent review, the WTO Panel largely agrees with the U.S. and New Zealand that...