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Canada - Autos: 1. Measure and Product at Issue

1. Canada provided import duty exemptions for motor vehicles and parts that were contingent on meeting domestic content and production ratios. Japan and the EU challenged this as inconsistent with WTO agreements. 2. The WTO panel and Appellate Body found the duty exemptions inconsistent with MFN treatment under GATT Article I and national treatment under Article III. They also found the exemptions contingent on exports in violation of the SCM Agreement. 3. However, the Appellate Body reversed the panel's finding that the measures violated GATS MFN, saying the panel failed to properly assess if the measures applied to trade in services. It cautioned panels to expressly address all claims, even if not ruling on them.

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73 views1 page

Canada - Autos: 1. Measure and Product at Issue

1. Canada provided import duty exemptions for motor vehicles and parts that were contingent on meeting domestic content and production ratios. Japan and the EU challenged this as inconsistent with WTO agreements. 2. The WTO panel and Appellate Body found the duty exemptions inconsistent with MFN treatment under GATT Article I and national treatment under Article III. They also found the exemptions contingent on exports in violation of the SCM Agreement. 3. However, the Appellate Body reversed the panel's finding that the measures violated GATS MFN, saying the panel failed to properly assess if the measures applied to trade in services. It cautioned panels to expressly address all claims, even if not ruling on them.

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JasperAllenBarrientos
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CANADA – AUTOS1

(DS139, 142)

PARTIES AGREEMENTS TIMELINE OF THE DISPUTE

Japan, Establishment of Panel 1 February 1999


Complainants ASCM Arts. 1, 3 and 4.7
European Communities Circulation of Panel Report 11 February 2000
GATS Arts. I and II
Circulation of AB Report 31 May 2000
Respondent Canada GATT Arts. I and III
Adoption 19 June 2000

1. MEASURE AND PRODUCT AT ISSUE

• Measure at issue:  Canada's import duty exemption for imports by certain manufacturers, in conjunction with the Canadian
Value Added (“CVA”) requirements and the production to sales ratio requirements.

• Product at issue:  Motor vehicle imports and imported motor vehicle parts and materials.

2. SUMMARY OF KEY PANEL/AB FINDINGS

• GATT Art. I (most-favoured-nation treatment):  The Appellate Body upheld the Panel's finding that the duty exemption was
inconsistent with the most-favoured-nation treatment obligation under Art. I:1 on the ground that Art. I:1 covers not only de jure
but also de facto discrimination and that the duty exemption at issue in reality was given only to the imports from a small number
of countries in which an exporter was affiliated with eligible Canadian manufacturers/importers. The Panel rejected Canada's
defence that Art. XXIV allows the duty exemption for NAFTA members (Mexico and the United States), because it found that
the exemption was provided to countries other than the United States and Mexico and because the exemption did not apply to
all manufacturers from these countries.

• GATT Art. III:4 (national treatment – domestic laws and regulations):  The Panel found that the CVA requirements forcing
the use of domestic materials to be eligible for tax exemption resulted in “less favourable treatment” to imports under Art. III:4
by adversely affecting the conditions of competition for imports.

• ASCM Art.  3.1 (prohibited subsidies):  (Art.  3.1(a) – export subsidies):  The Appellate Body upheld the Panel's finding
that the duty exemption in conjunction with the ratio requirements was a prohibited “subsidy” contingent “in law” upon export
performance within the meaning of Art. 3.1(a), because the amount of the duty exemption earned by a domestic manufacturer
was directly dependent upon the amount exported. The Panel recommended under Art. 4.7 that Canada withdraw the subsidy
within 90 days. (Art. 3.1(b) – import substitution subsidies):  The Appellate Body, reversing the Panel, found that Art. 3.1(b)
extends to subsidies that are contingent “in fact” upon the use of domestic over imported goods. It could not complete the
Panel's analysis due to the insufficient factual basis.

• GATS Arts.  I:1 (scope of measures affecting trade in services) and II:1 (most-favoured-nation treatment):  The
Appellate Body, reversing the Panel, found that (i) determination of whether a measure is covered by the GATS must be
made before the assessment of that measure's consistency with any substantive obligation of the GATS; (ii) the Panel failed
to examine whether the measure affected trade in services within the meaning of Art. I:1; and (iii) the Panel failed to assess
properly the relevant facts and to interpret Art. II:1. Thus, the Panel's conclusion that the measure was inconsistent with Art. II:1
was reversed.

3. OTHER ISSUES2

• Judicial economy:  While upholding the Panel's exercise of judicial economy in respect of the European Communities' claim
under ASCM Art. 3.1(a), the Appellate Body added a cautionary remark that “for purposes of transparency and fairness to the
parties, a panel should, however, in all cases, address expressly those claims which it declines to examine and rule upon for
reasons of judicial economy”.

1 Canada – Certain Measures Affecting the Automotive Industry


2 Other issues addressed: judicial economy; interpretation of “requirement” under GATT Art. III:4 (panel); deadline for elaboration of claims; order
of consideration of parties' claims; Panel's discussion of the measure under GATS Arts. V and XVII.

2019 EDITION 59

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