G/STR/Q1/CAN/18  
 
5 November 2018 
(18-6928) Page: 1/2 
Working Party on State Trading Enterprises  Original: English  
 
  
STATE TRADING  
REPLIES TO QUESTION S1 FROM THE EUROPEAN U NION  
REGARDING CANADA'S NEW AND FULL NOTIFIC ATION2 
The f ollowing communication, dated 26  October 2018, is being circulated at the request of the 
Delegation of Canada . 
 
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Question 1  
 
Could Canada please clarify the role of the Canadian Dairy Commission as regards 
"providing the technical support necessary for the operation of Canada's milk supply 
management system" and "administering revenue pooling agreements on behalf of the 
industry " (paragraph III -A, page 2 of the notification)? During the period 2015 -2017 
covered by the notification, Milk Class 7 was introduced in several provinces of Canada, 
and the EU understands that the prices for Milk Class 7 are set by the Canadian Dairy 
Corp oration. The EU expresses concerns that the new Milk Class 7 has a cross -
subsidisation effect for exports (through the high internal prices for dairy fats), and an 
import substitution effect. The EU would like to understand the role of the Canadian Dairy 
Commission in the operation of Milk Class 7. In particular, can Canada please explain 
whether the role of Canadian Dairy Commission is the same as it is in the management of 
the "Special Milk Classes" 5a, 5b, and  5c? If not, how is this difference working i n 
practice?  
 
Reply : 
 
Canada does not believe that this question is in the scope of the Working Party on State Trading 
Enterprises and Canada 's notification pursuant to the provisions o f Article XVII:4(a) of the 
GATT  1994 and paragraph 1 of the Understandin g on the Interpretation of Article XVII. Canada 's is 
required to notify the products which are imported into or exported from their territories by state 
trading enterprises. In terms of the Canadian Dairy Commission this includes exclusive or special 
privileges with respect to butter imports. Domestic milk class pricing is not related to the Canadian 
Dairy Commission 's exclusive or special privileges with respect to butter imports.  
 
Canada has answered similar questions from the EU and other WTO Members in  the Committee on 
Agriculture, and will continue to do so. Canada suggests that these types of questions be referred 
to that Committee.  
 
Question 2  
 
Does Canada agree that its milk class system, although allegedly a private mechanism, 
could only exist by virtue of a milk quota system imposed by the government of Canada 
and the Provinces and that the price levels on products produced within milk class 7 only 
is possible due to the higher prices paid for other milk classes to the farmers?   
 
                                                
1 G/STR/Q1/CAN/17 . 
2 G/STR/N/17 /CAN. G/STR/Q1/CAN/18  
 
- 2 - 
 
  Reply : 
 
Canada does not believe that this question is in the scope of the Working Party on State Trading 
Enterprises and Canada 's notification pursuant to the provisions o f Article XVII:4(a) of the 
GATT  1994 and paragraph 1 of the Understanding on the Interpretation of A rticle XVII.  
 
Question 3  
 
Can Canada please explain how milk class 7 is not in breach of Article 20 of the Nairobi 
Decision (circumvention of export subsidies ban by an STE)? EU acknowledges that CDC 
is not the exporter and no direct subsidies are paid, however these prices are possible 
only because of the Canadian dairy quota system, which is imposed by the Canadian 
government. Therefore, export with such low prices is only possible "by virtue of 
governmental action." This falls under the definition of e xport subsidy of Article 9.c 
of AoA. Therefore, EU would like to know how Canada justifies that milk class  7 is not a 
subsidy, and that CDC does not breach Article  20 of the Nairobi Decision?  
 
Reply : 
 
Canada has agreed to the provisions of the Nairobi Deci sion on Export Competition, including the 
section on Agriculture State Trading Enterprises, and Export Subsidies. Canada is committed to its 
implementation, including the elimination of exports subsidies for dairy products by the end of 2020. 
Canada is not  in breach of Article 20, or any other Articles of this Decision.  
 
Question 4  
 
Could Canada please explain the differences between the "Average representative 
domestic sales price" of 6.66 and 6.50 CAD/kg in Table I for imports (page 5 of the 
notification) , and the "Average representative domestic sales price" of 10.57 and 
10.62  CAD/kg in Table II for exports (page 6 of the notification)? According to the 
corresponding footnotes, two different definitions have been used for the same notion. 
Could Canada ple ase explain why two different sets of representative domestic sales 
prices have been used?  
 
Reply : 
 
For the average representative domestic sales price for Table I, the "average representative 
domestic sales price for imported butter " was used, while for Table II the average representative 
sales price is the "average representative domestic retail sales price ". 
 
For table I, the average representative sales price for imported butter is generally lower than the 
average representative domestic retail sales p rice as Canada 's WTO tariff rate quota for butter is for 
the use of processors and further processors. Canada has determined that it is more appropriate 
and representative to present the information in this way.  
 
Question 5  
 
Under the United States - Mexic o - Canada Agreement, Canada has committed to eliminate 
milk classes 6 and 7, and to ensure that products currently in those classes be reclassified 
and associated to prices established based on end use. Can Canada explain how it intends 
to implement those  commitments, and how that change will affect, if at all, Canada 's 
replies to the above questions?  
 
Reply : 
 
Canada does not believe that this question is in the scope of the Working Party on State Trading 
Enterprises and Canada 's notification pursuant to the provisions of Article XVII:4(a)  of the 
GATT  1994 and paragraph 1 of the Understanding on the Interpretation of Article XVII.  
 
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