On 17 August
1998, the European Communities requested consultations with the Government of Canada
pursuant to Article 4 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (the DSU), Article XXIII of the General Agreement on Tariffs and
Trade 1994 (the GATT), Article 8 of the Agreement on Trade-Related Investment Measures
(the TRIMs Agreement), Articles 4 and 30 of the Agreement on Subsidies and Countervailing
Measures (the SCM Agreement), and Article XXIII:1 of the General Agreement on Trade in
Services (the GATS) with respect to certain measures concerning Canada's motor vehicle
industry (WT/DS142/1).The European
Communities and Canada held consultations in Geneva on 21 September 1998 and on 13
November 1998. Unfortunately, those consultations failed to settle the dispute.
In
view of the above, the European Communities hereby request that a Panel be established at
the next meeting of the Dispute Settlement Body pursuant to Articles 4.7 and 6 of the DSU,
Article XXIII of GATT, Article 8 of the TRIMs Agreement, Articles 4 and 30 of the SCM
Agreement and Article XXIII:1 of the GATS, in accordance with the standard terms of
reference provided for in Article 7.1 of the DSU.
Identification of the measures at issue
The measures at issue (the "measures") include:
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the 1965 Agreement concerning Automotive Products between the Government of Canada and the
Government of the United States (the "Auto Pact");
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the Motor Vehicles Tariff Order of 1998 (the "MVTO 1998");
-
the Special Remission Orders providing for a remission of customs duties on imports of
motor vehicles by certain manufacturers of motor vehicles not covered by the Auto Pact and
the MVTO 1998;
-
the Letters of Undertaking submitted by certain manufacturers of motor vehicles to the
Government of Canada in connection with the Auto Pact;
-
the administrative memoranda issued by the Canadian authorities in connection with the
preceding measures; and
-
any other implementing measures.
The
measures grant to certain manufacturers of motor vehicles (the "beneficiaries")
a tariff exemption (the "tariff exemption") for importing motor vehicles
duty-free into Canada. The granting of that exemption is subject to two types of
conditions:
(1)
the beneficiary's local production of motor vehicles and parts and components therefor
must achieve a certain level of Canadian Value Added (the "CVA requirement");
and
(2)
the value of the beneficiary's sales of motor vehicles in Canada must keep a certain
proportion with the value of its local production of motor vehicles of the same category
(the "Ratio requirement").
Brief summary of the legal basis
The European Communities claim that the measures ae inconsistent with the
following provisions:
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Articles III:4 and I:1 of the GATT;
-
Article 2.1 of the TRIMs Agreement;
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Article 3.2, in conjunction with Articles 3.1(a) and 3.1(b) of the SCM Agreement; and
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Articles II and XVII of the GATS.
More
specifically, the European Communities claim that:
-
the CVA requirement provides an incentive to use domestic parts, components, materials and
certain non-permanent equipment for the manufacture of motor vehicles, and parts and
components therefor, instead of like imported inputs, thus violating GATT Article III:4;
-
the Ratio requirement provides an incentive to limit the domestic sales of imported motor
vehicles. No similar incentive is given for limiting the domestic sales of like domestic
vehicles. Therefore, the Ratio requirement affords less favourable treatment to imported
motor vehicles with respect to their internal sale in Canada than to like domestic motor
vehicles, thereby infringing GATT Article III:4;
-
the tariff exemption is inconsistent with GATT Article I:1 because it provides an
advantage to imports of motor vehicles originating in the United States and Mexico;
-
both the CVA requirement and the Ratio requirement are "investment measures" and
"trade-related measures" within the meaning of the TRIMs Agreement. Given that
they are inconsistent with GATT Article III:4, they violate also Article 2.1 of the TRIMs
Agreement;
-
the tariff exemption constitutes a "subsidy" within the meaning of Article 1.1
of the SCM Agreement, because revenue which would otherwise be due to the Canadian
Government is foregone or non-collected, thereby conferring a benefit to the
beneficiaries. The tariff exemption is contingent upon export performance, as well as upon
the use of domestic over imported goods. As such, it is prohibited by both Article 3.1(a)
and Article 3.1(b) of the SCM Agreement.
-
the CVA requirement provides an incentive for the beneficiaries to use services supplied
within the Canadian territory for the manufacture of motor vehicles, instead of like
services of other Members supplied "cross-border" or through "consumption
abroad", thus infringing Article XVII of the GATS; and
-
the tariff exemption is inconsistent with GATS Articles II and/or XVII because it accords
more favourable treatment to US and/or Canadian suppliers of wholesale trade services for
motor vehicles than to like service suppliers of other Members. |
