Canada — Certain Measures Affecting the Automotive Industry

Consultations

Complaint by the European Communities.

On 3 July 1998, Japan requested consultations with Canada in respect of measures being taken by Canada in the automotive industry. Japan contended that under Canadian legislation implementing an automotive products agreement (Auto Pact) between the US and Canada, only a limited number of motor vehicle manufacturers are eligible to import vehicles into Canada duty free and to distribute the motor vehicles in Canada at the wholesale and retail distribution levels. Japan further contended that this duty-free treatment is contingent on two requirements:

1. a Canadian value-added (CVA) content requirement that applies to both goods and services; and
2. a manufacturing and sales requirement. Japan alleges that these measures are inconsistent with Articles I:1, III:4 and XXIV of GATT 1994, Article 2 of the TRIMs Agreement, Article 3 of the SCM Agreement, and Articles II, VI and XVII of GATS.

On 17 August 1998, the EC requested consultations with Canada in respect of the same measures raised by Japan in WT/DS139 and cites the same provisions alleged to be in violation, except for Article XXIV of GATT 1994, which was cited by Japan but is not cited by the EC.

On 12 November 1998, Japan requested the establishment of a panel in respect of WT/DS139. At its meeting on 25 November 1998, the DSB deferred the establishment of a panel.

Panel and Appellate Body proceedings

Further to requests to establish a panel by Japan and the EC, at its meeting on 1 February 1999, the DSB established a single panel, pursuant to Article 9.1 of the DSU, to examine the complaints WT/DS139 and WT/DS142. India, Korea, and the US reserved their third-party rights. On 15 March 1999, the EC and Japan requested the Director-General to determine the composition of the Panel. On 25 March 1999, the Panel was composed. The report of the panel was circulated to Members on 11 February 2000. The panel found that:

• the conditions under which Canada granted its import duty exemption were inconsistent with Article I of GATT 1994 and not justified under Article XXIV of GATT 1994.
• the application of the CVA requirements to be inconsistent with Article III:4 of GATT 1994.
• the import duty exemption constitutes a prohibited export subsidy in violation of Article 3.1(a) of the SCM Agreement.
• the manner in which Canada conditioned access to the import duty exemption is inconsistent with Article II of GATS and could not justified under Article V of GATS.
• the application of the CVA requirements constitutes a violation of Article XVII of the GATS.

On 2 March 2000, Canada notified its intention to appeal certain issues of law and legal interpretations developed by the panel. The Appellate Body report was circulated to Members on 31 May 2000. The Appellate Body:

• reversed the panel’s conclusion that Article 3.1(b) of the Subsidies Agreement did not extend to contingency “in fact”.
• considered that the panel had failed to examine whether the measure at issue affected trade in services as required under Article I:1 of the GATS.
• reversed the panel’s conclusion that the import duty exemption was inconsistent with the requirements of Article II:1 of the GATS as well as the panel’s findings leading to that conclusion.

The DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report, on 19 June 2000.

Implementation Status of Adopted Reports

Pursuant to Article 21.3 of the DSU, Canada informed the DSB on 19 July 2000 that it would comply with the recommendations of the DSB. One of the recommendations made by the DSB was that Canada withdraw within 90 days the export subsidy found to be inconsistent with Article 3.1(a) of the Subsidies Agreement. On 4 August 2000, Japan and the European Communities requested, pursuant to Article 21.3(c) of the DSU, that the reasonable period of time be determined by arbitration. The arbitrator determined that the “reasonable period of time” was 8 months from the date of adoption of the Appellate Body and Panel Reports, as modified by the Appellate Body Report. The “reasonable period of time” was thus to expire on 19 February 2001. At the DSB meeting of 12 March 2001, Canada stated that, as of 18 February 2001, it had complied with the DSB’s recommendations.