Canada - Measures Relating To Exports Of Wheat And Treatment Of Imported Grain, (WT/DS276)

Australia's Third Party Submission to the Panel

Geneva 2 September 2003

 

I.   INTRODUCTION

1.  Australia appreciates the opportunity to present its views in this dispute on Canadian measures relating to exports of wheat and treatment of imported grain. 

2.  In this submission Australia intends to address only those issues that are relevant to the content and scope of Article XVII of the General Agreement on Tariffs and Trade 1994 (GATT 1994) concerning State Trading Enterprises (STEs)[1], in particular:

3.  Australia notes, as accepted by both Parties and recognised by previous Panels, that the creation of STEs (both state enterprises and enterprises granted exclusive or special privileges by Members) including those exercising monopoly rights, is entirely consistent with GATT 1994.  With regard to STEs, the issue before the Panel in this dispute is therefore when the activities of a particular STE may become inconsistent with the general principles of non-discriminatory treatment prescribed by GATT 1994, such that the WTO Member creating that STE is in breach of its obligations under Article XVII.

4.  Also uncontested is that the purpose of Article XVII is to ensure that WTO Members do not through an STE circumvent their obligations with respect to non-discriminatory treatment.  Australia submits that this objective - that STE creation does not confer any advantage on a Member - must necessarily be balanced by recognition that a Member choosing to create an STE to undertake certain activities should not be placed in a worse position than a Member whose private traders carry out the same activities, just as STEs themselves should not be placed in a worse trading position than such private traders.

5.  In this context, Australia submits that the standard to be applied to the acts of STEs must complement, and be consistent with, standards applied under GATT disciplines reviewing governmental measures affecting imports and exports of private traders.  A different standard is neither required by, nor consistent with, the text or the objective of Article XVII.

6.  Australia also submits that Article XVII obligations should not be considered to provide an avenue for contesting governmental measures that are otherwise permitted by, or not inconsistent with, particular disciplines of GATT 1994.  Article XVII should also not be used to attempt to address situations more appropriately remedied by particular applicable GATT 1994 or other WTO disciplines.

7.  Finally, Australia also notes that this is the first dispute in which the application of Article XVII to an exporting STE, and in particular one exercising export monopoly rights, is at issue.  Previous Panels addressing Article XVII and STEs have addressed importing STEs and the non-discriminatory principles applicable to purchases and sales involving imports, and their opinions must be considered in that context.

II.  Article XVII of GATT 1994

A.  STEs Are Not Inconsistent With GATT 1994

8.  As acknowledged by both Parties to this dispute, the creation of STEs to undertake purchases or sales involving imports or exports, is entirely consistent with GATT 1994. 

9.  Moreover, it is also clear from the text of GATT 1994 and the conclusions of prior Panels dealing with (import) monopolies that the creation of STEs exercising monopoly rights and their behaviour as monopolies per se, is also not inconsistent with Members' obligations under GATT 1994 in general or Article XVII of GATT 1994 in particular. 

10.  As the 1989 Panel Report in Republic of Korea - Restrictions on Imports of Beef - Complaint by the United States[2]concluded:

the rules of the General Agreement did not concern the organization or management of import monopolies but only their operations and effect on trade,...the existence of a producer-controlled monopoly could not in itself be in violation of the General Agreement[3].

11.  That such STEs are not in themselves inconsistent with the GATT 1994 has been and should continue to be a fundamental consideration for any Panel in interpretation and application of Article XVII.  For example, in considering which “principles of non-discriminatory treatment” are appropriate, the Panel should ensure that the application and/or interpretation of such principles does not negate or undermine the permitted right of Members to create exporting STEs, including those exercising export monopoly rights. 

B.  The Nature and Scope of Article XVII:1(a)

12.  Article XVII:1(a) of GATT 1994 essentially serves to ensure that WTO Members do not, through an STE, circumvent their GATT obligations with respect to non-discriminatory treatment.  In practice, it essentially requires of Members, as regards their STEs, the same general standard regarding consistency with the general principles of non-discriminatory treatment of GATT 1994 as such Members have undertaken regarding their measures affecting private import and export trade. 

13.  This is clear from the text of Article XVII:1(a) itself (emphasis added):

Each [Member] undertakes that if it establishes or maintains a State enterprise, wherever located, or grants to any enterprise, formally or in effect, exclusive or special privileges, such enterprise shall, in its purchases or sales involving either imports or exports, act in a manner consistent with the general principles of non-discriminatory treatment prescribed in this Agreement for governmental measures affecting imports or exports by private traders.

14.  However it is equally clear that the obligation set out in Article XVII:1(a) is relevant to only a particular set of activities by STEs - that is 'purchases or sales involving either imports or exports'.  Article XVII:1(a) does not extend this undertaking of consistency to all trade-related activities or to the general behaviour of importing or exporting STEs.

15.  Australia also notes that Article XVII:1(a) contains only a general obligation in the form of an undertaking that STEs shall act consistently with the principles of non-discriminatory treatment of GATT 1994.  It does not contain additional obligations which specify, proscribe or direct how a Member must give effect to its undertaking.  Any Member is free to choose the approach it takes to fulfil this obligation.  It may choose direct oversight or supervision of its STE or create legislative, regulatory reporting and monitoring structures, or it may not.  It is under no obligation under Article XVII to choose any particular course of action[4].  Similarly, there is no inference that any means of implementation is better than another, or that its presence or absence is more or less indicative of GATT consistency, just as there is no inference that any particular type of exclusive or special privilege granted to an STE is inconsistent with GATT 1994 per se. 

C.  Defining the standards applicable to STE behaviour

16.  The fundamental primacy of the non-discriminatory treatment principles of the GATT 1994 in defining the standard against which STE behaviour (in purchases or sales involving imports or exports) is to be measured is clearly evident from the text of Article XVII:1(a).  This has been confirmed in the approach that previous Panels have taken to the relationship of Article XVII with the rest of GATT 1994.  The Panels in Canada - FIRA, Canada, Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies [5] and Korea - Measures Affecting Imports of Fresh, Chilled or Frozen Beef [6](Korea Beef) all essentially found, as the Korea Beef Panel put it:

(a) conclusion that the principle of non-discrimination was violated would suffice to prove a violation of Article XVII'[7].

17.  Subparagraph XVII:1(b) states that:

The provisions of subparagraph (a) of this paragraph shall be understood to require that such enterprises shall, having due regard to the other provisions of this Agreement, make any such purchases or sales solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale, and shall afford the enterprises of other [Members] adequate opportunity, in accordance with customary business practice, to compete for participation in such purchases or sales.'

18.  From the text of Article XVII:1, it is clear that the role of subparagraph 1(b) is to provide better identification, interpretation and application of the obligation and standard set out in subparagraph 1(a).  This is unambiguously articulated in the wording of the first phrase of subparagraph 1(b) itself -“(t)he provisions of sub-paragraph (a) of this paragraph shall be understood to require… having due regard to the other provisions of the GATT…”.

19.  The Panels in the Canada FIRA[8] case and the Korea Beef case both concluded (as stated by the Korea Beef Panel), that “(t)he GATT jurisprudence has also made clear that the scope of paragraph XVII:1(b), which refers to commercial considerations, defines the obligations set out in paragraph 1(a)”[9]

20.  In this regard, the Korea Beef Panel's additional statement that:

similarly, a conclusion that a decision to purchase or buy was not based upon commercial considerations would also suffice to show a violation of Article XVII[10]

is not suggesting that Article XVII:1(b) creates an entirely separate obligation on Members concerning the standard of behaviour of their STEs.  It would be inconsistent with the rest of that Panel's analysis and conclusions on this matter for it to be suggested that the Korea Beef Panel is asserting that the elements of subparagraph (b) are to be considered and interpreted in isolation from subparagraph 1(a).  Rather, in that dispute, the reasoning of the Panel suggested that a decision to purchase or buy not based on commercial consideration shows - or demonstrates - that a violation of Article XVII:1(a) has occurred.

21.  Australia therefore submits it is clear that “the general principles of non-discriminatory treatment prescribed in the GATT” of subparagraph 1(a) is the standard against which the behaviour of STEs is to be assessed.  The definitional elements and illustrative variables of subparagraph 1(b) assist in this process. 

22.  The primary objective of Article XVII:1(c) is to require a certain standard of behaviour of the Member government - that is, of not preventing its enterprises (STE and private alike) from acting consistently with the general principles of non-discriminatory treatment of GATT 1994.  This obligation runs parallel to, and complements, a Member's other undertakings under Article XVII and under GATT 1994 itself.

23.  As with the obligation enunciated in XVII:1(a), similarly XVII:1(c) is silent as to how and to what degree a Member is to act so as to 'not prevent' consistency.  This remains the choice of the Member concerned.  Similarly, Australia submits that this obligation to refrain cannot be read to imply a more direct obligation on a Member to actively ensure any form of behaviour by its enterprises. 

24.  Subparagraph 1(c) also envisages that subparagraphs (a) and (b) are to be read together in enunciating the obligation contained in subparagraph 1(c).  Following this reasoning, when examining the scope of subparagraph 1(c), the Panel in Canada FIRA concluded that “subparagraph 1(b) does not establish a separate general obligation to allow enterprises to act in accordance with commercial considerations”[11]

D.  The Need for a Case by Case Approach to the Interpretation and Application of the Standard

25.  Any application of the elements of Article XVII must necessarily be undertaken on a case-by-case basis.  What is an appropriate application to the particular enterprise in question of the general principles of non-discriminatory treatment prescribed in GATT 1994, including which principles are of relevance to the particular acts complained of in the instant case, must be considered. 

26.  It should also be noted that, when elements of subparagraph (b) are applied, the language of the subparagraph itself requires a case by case approach.  For example, in considering the meaning of 'solely in accordance with commercial considerations' it is clear that the additional variables listed ('including price, quality, availability, marketability, transportation and other conditions of purchase or sale') are not intended to be exclusive or exhaustive. 

27.  Additionally, what is a relevant commercial consideration and what would be indicative evidence that an STE is or is not acting solely in accordance with such considerations will vary from enterprise to enterprise and from industry sector to industry sector.  Relevant factual considerations may include the particular privileges granted to the STE and the regulatory environment under which it operates.

28.  Also relevant is what is usual or customary commercial business practice in the market, including that of private traders, and the nature and conditions of the international market.  For example, market segregation for the purposes of marketing and pricing is a common private sector business practice, considered to be in accordance with commercial considerations.  Like private traders, export STEs can and do differentiate between markets as a result of supply and demand conditions.  That this is considered permissible behaviour for an STE is expressly recognised in the interpretive Ad Note to this Article.[12]  Similarly pooling arrangements are a normal commercial risk management and marketing tool used in agricultural production and trade by agricultural and other co-operatives and also are used in other industry sectors, such as insurance. 

29.  Article XVII must not be interpreted in such a way as to be held to require a different standard for regulation of STE behaviour by Members as distinct from their regulation of private traders involved in the same activities.  This would in effect undermine the legitimacy of the existence of such enterprises under GATT 1994.  Any standard/s applied to purchases and sales involving either imports or exports by STEs must complement and be consistent with those applied to governmental measures affecting private traders.

III.  CONCLUSIONS

30.  State Trading Enterprises, including those exercising monopoly rights for purchases or sales involving imports or exports, are permissible under, and are not inconsistent with, GATT 1994.

31.  The obligation undertaken by a Member under Article XVII:1(a) concerning the conduct of its STEs is a general obligation to achieve a result, and does not encompass any specific obligations concerning how that result is to be achieved.  The obligation under Article XVII:1(a) also only extends to the behaviour of its STEs in making purchases or sales involving imports and exports and not to other behaviour of that STE. 

32.  In regard to assessing whether a member has met its obligation under Article XVII:1, the behaviour or action of the STE at issue will need to be considered against the standard provided for in Article XVII:1(a), as assisted by the additional definitions provided in subparagraph 1(b).  The unambiguous wording of Article XVII:1(a), and the weight of opinion in previous Panels indicates that the applicable standard is that of consistency of the behaviour or action with the general principles of non-discriminatory treatment prescribed in GATT 1994.  What the applicable general principles are will depend on the facts of each case and the behaviour complained of regarding a STE's purchases or sales, and possibly also whether the purchase or sale involves imports or exports. 

33.  Similarly, in reviewing the further elements of interpretation in subparagraph 1(b) including 'commercial considerations', such requirements must be considered on a case by case basis, having regard to the particular factual situation of each dispute. 

34.  Article XVII must not be interpreted in such a way as to require a different level of obligation to be applied to Members with regard to their non-discriminatory treatment undertakings concerning their STEs as compared to their measures affecting imports or exports by private traders.  Similarly, it must not be interpreted so as to prohibit activities that are permitted, or not prohibited, elsewhere in the WTO Agreement. 


[1] Such enterprises are understood to mean, pursuant to Article XVII:1(a) both State enterprises established or maintained by a Member, wherever located, or any enterprise to which that Member has granted, formally or in effect, exclusive or special privileges and a reference in this submission to STEs encompasses both forms of enterprise.

[2] L/6503, adopted on 7 November 1989, 36S/268

[3] Ibid , para 115 emphasis added

[4] Even Article XVII:4 which prescribes STE notification procedures and requirements on Members only identifies the information to be provided, and does not determine how a Member should go about gathering information domestically to fulfil this obligation. 

[5] L/6304 adopted on 22 March 1988, 35S/37

[6] WT/DS161/R WT/DS169/R adopted 10 January 2001

[7] Korea Beef para 757

[8] Canada FIRA  para 5.16

[9] Korea Beef  para 755

[10] Korea Beef para 757, emphasis added

[11] Canada FIRA  para 5;16

[12] Interpretive Note Ad Article XVII paragraph 1