CANADA – MEASURES AFFECTING THE IMPORTATION OF MILK AND THE EXPORTATION OF DAIRY PRODUCTS
Document: Recourse by the United States to Article 21.5 of the DSU Request for Consultations
Date: 12 February 2001
Document codes: WT/DS103/15
Complainant: U.S.
Respondent: Canada
Third parties: Argentina, Australia, EU, Japan, Mexico
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 8, 9, 10  AgricultureArt. X, XI, XIII  GATT 1994Art. 1, 2, 3  Import LicensingArt. 3  Subsidies and Countervailing Measures (SCM)Art. 3, 4  AgricultureArt. II  GATT 1994

CANADA – MEASURES AFFECTING THE IMPORTATION OF MILK
AND THE EXPORTATION OF DAIRY PRODUCTS
Recourse by the United States to Article 21.5 of the DSU
Request for Consultations
The following communication, dated 2 February 2001, from the Permanent Mission of the
United States to the Permanent Mission of Canada and to the Chairman of the Dispute Settlement
Body, is circulated pursuant to Article 21.5 of the DSU.
On 27 October 1999, the Dispute Settlement B ody (DSB) adopted its recommendations and
rulings in the dispute "Canada - Measures Affecting the Importation of Milk and the Exportation of
Dairy Products (WT/DS103). The DSB recommended that Canada bring the export subsidy measures
found to be inconsistent with its obligations under the Agreement on Agriculture into conformity with
that agreement.
On 23 December 1999, Canada, New Zealand, and the United States concluded an agreement
pursuant to Article 21.3 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes (the DSU) (WT/DS/103/10; ) on the reasonable period of time available to
Canada to implement the DSB's recommendations. By the terms of that agreement, Canada
committed to complete the implementation process by no later than 31 December 2000. The
reasonable period of time later was extended to 31 January 2001 by the mutual agreement of the
parties to the dispute.
In the view of the United States, Canada has failed to implement the DSB recommendations
and rulings by not bringing its export regime for dairy products into compliance with its export
subsidy commitments under the Agreement on Agriculture. While Canada has eliminated the Special
Class 5(e) export subsidies that the DSB found to contribute to a violation of Canada's export subsidy
commitments under Articles 3, 8 and 9 of the Agreement, Canada substituted new programmes in
place of the Special Class 5(e) export subsidies. In addition, Canada has retained and continues to use
the Special Class 5(d) export subsidy, which Canada acknowledges the DSB found was an export
subsidy.
The new programmes introduced by Canada as part of its attempted implementation vary
from province to province, but possess several common elements. The provincial programmes
instituted in nine of Canada's provinces during the implementation period allow exporters to purchase
milk at prices that are below prevailing market levels in Canada for milk used in dairy products sold
into Canada's domestic market. The low priced milk made available to these exporters (dairy
processors) can only be used to manufacture dairy products for sale to foreign markets and, thus, the
availability of such milk is contingent on expor t. Sanctions exist to penalize any processor that
diverts products made from such low priced milk into Canada's domestic market.

For purposes of Canada's export subsidy commitments under the Agreement on Agriculture,
the access given to low priced milk through these substitute programmes does not appear to differ in
any meaningful respect from that provided under the Special Class 5(e) system that was found by the
Dispute Settlement Body to constitute an export subsidy. Thus, through its national and provincial
measures, including pricing arrangements for milk and its components, Canada is continuing to
provide export subsidies on dairy products through these provincial mechanisms, and the associated
federal regulations and orders, as well as Special Class 5(d), without regard to its export subsidy
commitments. Available data shows that the quantity of Canada's subsidized dairy product exports
were higher in certain categories than the applicable reduction commitment levels for marketing year
1999/2000. Moreover, dairy product exports duri ng the 2000/2001 marketing year appear to be
occurring at monthly levels that, if continued for the remainder of the year, would result in an
additional year of subsidized export shipments inconsistent with Canada's obligations. These export
subsidies distort markets for dairy products and adversely affect the United States.
The United States considers that the followin g measures establish an export regime that is
inconsistent with Canada's obligations under the Agreement on Agriculture and the Agreement on
Subsidies and Countervailing Measures (the SCM Agreement):
(1) The Canadian Dairy Commission Act;
(2) the Dairy Products Marketing Regulations, as amended, including those amendments
published in the Canada Gazette on 3 January 2001, and SOR/94-466;
(3) The Agricultural Products Marketing Act, as well as amendments to the provincial
milk delegation orders issued under the Act relating to the authority to regulate marketing in
interprovincial and export trade of milk, including those amendments published in the Canada
Gazette on 3 January 2001 and Order JUS602260; Nova Scotia Milk Order, SOR/94-626;
Ontario Milk Order C.R.C., c. 215; Quebec Milk Order SOR/94-720; New Brunswick Milk
Order SOR/94-627; Manitoba Milk Order C.R.C., c. 155; Prince Edward Island Milk Order,
Registration 6 October 1994; Saskatchewan Milk Order SOR/94-721; Alberta Milk Order
SOR/94-719;
(4) The Comprehensive Agreement on Special Class Pooling, as well as Annexes,
Addendums, and Schedules thereto, including the Optional Export Program, both as described
therein and as operated in the provinces exporting dairy products;
(5) The National Milk Marketing Plan, as well as Appendices and Amendments thereto;
(6) The interprovincial Comprehensive Agreement on Special Class Pooling;
(7) The operations of the Canadian Milk Supply Management Committee;
(8) Official communications from provincial Agricultural Ministers to the Federal
Minister of Agriculture and Agri-Food outlining the new mechanisms, as per Canada's note of
1 December 2000 "Responses to Questions posed by New Zealand and/or the United States
regarding Provincial Dairy Export Mechanisms (hereinafter "Canadian Responses")";
(9) Directions to the Canadian Dairy Commission by the Minister of Agriculture and
Agri-Food under Section 11 of the Canadian Dairy Commission Act as published in the
Canada Gazette on 3 January 2001 (JUS-602420);

(10) The provincial export mechanisms adopted in the provinces of Prince Edward Island,
Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta and British
Columbia as identified and described in materials provided by Canada to the United States in
consultations held under the 23 December 1999 Implementation Agreement and referenced in
Canadian Responses (Answer to Question 1);
(11) All acts, statutes, regulations, orders, and rulings regarding the provincial export
mechanisms referenced above or relating to th e provincial authority to regulate milk for
intraprovincial, interprovincial, or export trade, including the following:
(a) Prince Edward Island: Contractual Commer cial Export Activity Order, Board Order
MMBOO-02;
(b) Nova Scotia: Dairy Commission Act, Section 5(2) of Schedule "Regulations
Respecting Milk Production"; Section 3(15) of Schedule 8 " Regulations for
Specified Areas"; Schedule 13 "Regulation Respecting Contracted Exports for Dairy
Products";
(c) Quebec: Government of Quebec, Order in Council 1408-2000 (6 December 2000), as
published in Gazette Officielle du Québec on 3 January 2001; Gazette Officielle du
Québec, 9 August 2000, no. 32; Decision 7140, Régie des marchés agricoles et
alimentaire; Décision 7111, Régie des marchés agricoles et alimentaire;
(d) Ontario: Regulation 179/00; DFO Milk General Regulation 09/00; DFO Milk
Pricing Regulation 08/00;
(e) Manitoba: Export Contract Milk Exemption Order;
(f) Saskatchewan: Milk Control Regulations;
(g) Alberta: Dairy Board Amendment Regulation, O.C. 260/2000, Alberta Contracted
Export Milk, Clarification of Operating Procedures; and
(h) British Columbia: British Columbia Milk Marketing Board Consolidated Order;
These measures appear to be inconsistent with the obligations of Canada under the
Agreement on Agriculture and the SCM Agreement. The provisions of these agreements with which
these measures appear to be inconsistent include:
(1) Agreement on Agriculture, Articles 3.3, 8, 9.1, 10.1 and 13; and
(2) Agreement on Subsidies and Countervailing Measures, Articles 1, 3 and Annex I.
Without prejudice to its rights under the WTO, and in accordance with paragraph 1 of the
21 December 2000 "Agreed Procedures between Canada and the United States under Articles 21 and
22 of the Dispute Settlement Understanding in the follow-up to the dispute in "Canada - Measures
Affecting the Importation of Milk and the Exportation of Dairy Products" (WT/DS103/14), the
United States hereby requests Canada to enter into consultations. A statement of available evidence
as to the existence and nature of the subsidies is included in the Annex.
We look forward to receiving your reply to the present request and to fixing a mutually
convenient date for consultations.

Statement of Available Evidence
The following evidence is available to the United States within the meaning of Article 4.2 of
the SCM Agreement:
1. Panel and Appellate Body Reports in WT/DS103 and WT/DS113.
2. The Canadian Dairy Commission Act;
3. The Dairy Products Marketing Regulations, as amended, including those amendments
published in the Canada Gazette on 3 January 2001, and SOR/94-466;
4. The Agricultural Products Marketing Act, as well as amendments to the provincial milk
delegation orders issued under the Act relating to the authority to regulate marketing in interprovincial
and export trade of milk, including those amendments published in the Canada Gazette on
3 January 2001 and Nova Scotia Milk Order, SO R/94-626; Ontario Milk Order C.R.C., c. 215;
Québec Milk Order SOR/94-720; New Brunswick Mi lk Order SOR/94-627; Manitoba Milk Order
C.R.C., c. 155; Prince Edward Island Milk Order, Registration 6 October 1994; Saskatchewan Milk
Order SOR/94-721; Alberta Milk Order SOR/94-719;
5. The Comprehensive Agreement on Special Class Pooling, as well as Annexes, Addendums,
and Schedules thereto, including the Optional Export Program, both as described therein and as
operated in the provinces exporting dairy products;
6. the National Milk Marketing Plan, as well as Appendices and Amendments thereto;
7. The Interprovincial Comprehensive Agreement on Special Class Pooling;
8. The operations of the Canadian Milk Supply Management Committee;
9. Official communications from provincial Agricu ltural Ministers to the Federal Minister of
Agriculture and Agri-Food outlining the new mechanisms, as per Canada's note of 1 December 2000
"Responses to Questions posed by New Zealand and/ or the United States regarding Provincial Dairy
Export Mechanisms (hereinafter "Canadian Responses");
10. Directions to the Canadian Dairy Commission by the Minister of Agriculture and Agri-Food
under Section 11 of the Canadian Dairy Commission Act as published in the Canada Gazette on 3
January 2001 (JUS-602420);
11. The provincial export mechanisms adopted in the provinces of Prince Edward Island,
Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta and British
Columbia as identified and described in materials provided by Canada to the United States in
consultations held under the 23 December 1999 Implementation Agreement and referenced in
Canadian Responses (Answer to Question 1);
12. All regulations, orders, and rulings regardin g the provincial export mechanisms referenced
above or relating to the provincial authority to re gulate milk for intraprovincial, interprovincial, or
export trade, including the following:
(a) Prince Edward Island: Contractual Commer cial Export Activity Order, Board Order
MMBOO-02;

(b) Nova Scotia: Dairy Commission Act, Section 5(2) of Schedule "Regulations
Respecting Milk Production", Section 3(15) of Schedule 8 "Regulations for Specified Areas";
Schedule 13 "Regulation Respecting Contracted Exports for Dairy Products";
(c) Quebec: Government of Quebec, Order in Council 1408-2000 (6 December 2000), as
published in Gazette Officielle du Québec on 3 January 2001; Gazette Officielle du Québec,
9 August 2000, no. 32; Décision 7140, Régie des marchés agricoles et alimentaire; Décision 7111,
Régie des marchés agricoles et alimentaire;
(d) Ontario: Regulation 179/00; DFO Milk General Regulation 09/00; DFO Milk
Pricing Regulation 08/00;
(e) Manitoba: Export Contract Milk Exemption Order;
(f) Saskatchewan; Milk Control Regulations;
(g) Alberta: Dairy Board Amendment Regulation, O.C. 260/2000; Alberta Contracted
Export Milk, Clarification of Operating Procedures; and
(h) British Columbia: British Columbia Milk Marketing Board Consolidated Order;
13. Export contract volumes and prices for November-December 2000 reported on the Quebec
Individual Export Mechanism (Bulletin Board), at
http://www.telmatik.com/laitexport;
14. Export contract volumes and prices contained on the Ontario Bulletin Board found at
http://exportcontracts.org;
15. Prices for milk and milk components sold into the domestic market in Canada as reported at
http://www.dairyinfo.agr.ca/cadairy.htm.
16. Memorandum from Catherine Tokarz to Members of National Dairy Council regarding status
of Optional Export Program, dated March 2000;
17. Excerpt from Barry Wilson's Dairy Industry Newsletter, dated 1 August 2000, entitled
"Farmers Leap at New Export Regime";
18. Letter from Parmalat Canada, dated October 2000, describing changes in Canada's export
subsidy regime resulting from the WTO dispute ruling and recommendations;
19. National Post Article, 20 March 2000, "Why milk marketing boards must go";
20. National Dairy Council of Canada, April 2000, volume 9-2, "Dairy Export Business in
Crisis".