CANADA – TAX EXEMPTIONS AND REDUCTIONS FOR WINE AND BEER
Document: Request for Consultations by the European Communities
Date: 4 December 2006
Document codes: WT/DS354/1; G/L/806; G/SCM/D72/1
Complainant: EU
Respondent: Canada
Dispute stage: Consultation
Agreements cited: Art. III:1, III:2, III:4  GATT 1994Art. 3.1, 3.2  Subsidies and Countervailing Measures (SCM)

CANADA – TAX EXEMPTIONS AND REDUCTIONS
FOR WINE AND BEER

Request for Consultations by the European Communities

 The following communication, dated 29 November 2006, from the delegation of the
European Communities to the delegation of Canada and to the Chairman of the Dispute Settlement
Body, is circulated in accordance with Article 4.4 of the DSU.

 The European Communities hereby requests cons ultations with Canada pursuant to Articles 4
and 30 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), Article 4 of
the Understanding on Rules and Procedures Go verning the Settlement of Disputes ("DSU") and
Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) regarding
Canada's tax exemptions and reductions for wine and beer.

 The issues which the European Communities would like to raise in the course of the
consultations include, but are not limited to, the following:

 – Canada's exemption from federal excise duties of wine produced in Canada and
composed wholly of agricultural or plan t products grown in Canada, in accordance
with Canada Revenue Agency Notice EDN 15 of June 2006

 – Canada's reduction of excise duty rates on the first 75,000 hl of beer and malt liquor
produced and packaged in Canada per year by a licensed brewer, in accordance with
Canada Revenue Agency Notice EDBN 9 of July 2006.

 The European Communities understands that the above exemptions and reductions are
provisionally applied since 1 July 2006 based on a " Notice of ways and means motion ".
1 A t t h e
present time, proposed amendments to the Excise Act 2001 and the Excise Act as laid down in
Bill C-28 "A second act to implement certain provisions of the budget tabled in Parliament on May 2,
2006" of 18 October 2006, preceded by a " Notice of ways and means motion to implement certain
provisions of the Budget tabled in Parliament on May 2, 2006" are being discussed in the Canadian

1 Notice of Ways and Means Motion to amend the Excise Tax Act, the Excise Act, 2001, the Excise Act
and the Air Travellers Security Charge Act relating to other sales tax measures/That it is expedient to amend the
Excise Tax Act , the Excise Act, 2001 , the Excise Act and the Air Travellers Security Charge Act to provide
among other things: that the provisions of the Excise Act, 2001 and the Excise Act relating to excise duties on
wine and beer be modified for vint ners and small brewers in accordance w ith the proposals described in the
budget documents tabled by the Minister of Finance in the House of Commons on May 2, 2006
http://www.fin.gc.ca/budget06/bp/bpa3be.htm#Notice.

Parliament. The adoption of Bill C-28 would ma ke these exemptions and reductions applicable
definitively.

 For each of the measures referred to above, this request also covers any amendments,
replacements, extensions, implementing measures or other related measures, inter alia any act of the
Canadian Parliament or the executive that would c onfirm, extend, amend or otherwise affect the tax
measures in question.

 The European Communities considers that th ese measures are inconsistent with Canada's
obligations under the SCM Agreement and GATT 1994. In particular, as far as wine is concerned:

 – Canada is acting inconsistently with Article III:2 of the GATT 1994, by subjecting
the products of the territory of other Member s imported into the territory of Canada,
directly or indirectly, to internal taxes or other internal charges of any kind in excess
of those applied, directly or indirectly, to like domestic products. Canada is also
acting inconsistently with Article III:2 of the GATT 1994 by applying internal taxes
or other internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1 of Article III.

 As far as agricultural and plant products are concerned, from which wine is made:

 – Canada is acting inconsistently with Ar ticles 3.1(b) and 3.2 of the SCM Agreement
by granting and maintaining a subsidy that is contingent, whether solely or as one of
several other conditions, upon the use of domestic over imported goods;

 – Canada is acting inconsistently with Article III:2 of the GATT 1994, by subjecting
the products of the territory of other Memb ers imported into the territory of Canada
indirectly to internal taxes or other intern al charges of any kind in excess of those
applied, directly or indirectly, to like domestic products. Canada is also acting
inconsistently with Article III:2 of the GATT 1994 by applying internal taxes or other
internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1 of Article III;

 – Canada is acting inconsistently with Article III:4 of the GATT 1994, by failing to
accord, to products of the territory of the European Communities imported into the
territory of Canada, treatment no less favour able than that accorded to like products
of national origin in respect of all laws, regulations and require ments affecting their
internal sale, offering for sale, purchase, transportation, distribution or use.

 As far as beer and malt liquor are concerned:

 – Canada is acting inconsistently with Article III:2 of the GATT 1994, by subjecting
the products of the territory of other Memb ers imported into the territory of Canada
indirectly to internal taxes or other intern al charges of any kind in excess of those
applied, directly or indirectly, to like domestic products. Canada is also acting
inconsistently with Article III:2 of the GATT 1994 by applying internal taxes or other
internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1 of Article III.

 The European Communities considers that exemptions and reductions from excise duties
applied by Canada to wine and to beer and malt liquor, respectively, also nullify or impair the benefits
accruing to the European Communities under the GATT 1994.

 Article 4.2 of the SCM Agreement requires that a request for consultations under Article 4.1
of the SCM Agreement include a statement of available eviden ce with regard to the existence and
nature of the subsidy in question. This request identifies the existence and nature of the subsidies, and
further available evidence is listed in the Annex to this request.

 The European Communities reserves the right to address additional measures and claims
under other provisions of the WTO Agreements rega rding the above matters during the course of the
consultations.

 The European Communities looks forward to receiving in due course a reply from Canada to
this request. The European Communities is ready to consider with Canada mutually acceptable dates
to hold consultations in Geneva.

ANNEX

STATEMENT OF AVAILABLE EVIDENCE

 The evidence set out below is evidence availa ble to the EC at this time regarding the
existence and nature of the subsidies set out in the request for consultations. It reflects the presently
available evidence regarding the claims reflected in the EC’s request for consultations and is
supported by documents that are liste d below. The EC reserves the right to supplement or alter this
list in the future, as required. Th e European communities' request fo r consultations describes in more
detail the nature of these subsidies.

– Bill C-28 "A second act to implement certain pr ovisions of the budget tables in Parliament on
May 2, 2006", Part 3, available at
http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=2410854&language=e&
mode=1;

– Canada Revenue Agency, Excise duty notice EDN n° 15 under the Excise Act, 2001,
June 2006, available at http://www.cra-arc.gc.ca/E/pub/em/edn15/edn15-e.html

– Canada Revenue Agency, Excise duty notice ED BN n° 9 under the Excise Act, July 2006,
available at http://www.cra-arc.gc.ca/E/pub/em/edbn9/README.html;

– Canada Revenue Agency, Excise duty notice E DN n°9 under the excise Act and the Excise
Act, 2001, May 2006, at http://www.cra-arc.gc.ca/E/pub/em/edn9/edn9-e.pdf

– Canada Revenue Agency, Excise duty notice EDN n°11 under the Excise Act at
http://www.cra-arc.gc.ca/E/pub/em/edn11/edn11-e.pdf

– Canada Revenue Agency, Excise duty notice EDBN n° 6 under the Excise Act 2001, at
http://www.cra-arc.gc.ca/E/pub/em/edbn6/edbn6-e.html

– Canada Revenue Agency, Excise duty notice EDBN n° 8 under the Excise Act at
http://www.cra-arc.gc.ca/E/pub/em/edbn8/edbn8-e.pdf

– "Canada's government is further reducing the tax burden for Canadian wineries and
Breweries", available at http://www.fin.gc.ca/news06/06-027e.html

– "Notice of ways and means Motion to implem ent certain provisions of the budget tabled in
Parliament on May 2, 2006", The Minister of finance, ref. 90386-2006-10-13,, available at
http://www.fin.gc.ca/drleg/wmmbud06l.pdf
 and http://www.fin.gc.ca/news06/06-057e.html;

– Canada Budget Plan 2006 at Depa rtment of Finance Canada at
http://www.fin.gc.ca/budget06/bp/bptoce.htm and Tax Measures: Supplementary
Information-Annex 3 - Tax Measures: Supplementary Information and Notices of Ways and
Means Motions at http://www.fin.gc.ca/budget06/bp/bpa3ae.htm