World Trade Organization

Questions⁶⁷⁹ and Replies

1. Factual Arguments of the Parties

   1. Questions and replies relating to factual arguments on the measures at issue

      1. Question 12 (the ratio requirement)

1. Reply from Canada

1. 
   The minimum allowable ratio requirement is 75:100. The average of the actual ratio requirements for the four MVTO automobile manufacturers is approximately 95:100.
   

1. Question 36 (the "actual" ratio requirements for MVTO automobile manufacturers)

1. Reply from Canada

   1. 
      The "actual ratio requirement” for each MVTO automobile manufacturer was determined on a company-by-company basis for each class of vehicle, and represents the production to sales ratio for that company during the base year (August 1, 1963 through July 31, 1964), as confirmed by audit. Each company was informed of the amount it had achieved in the base year. This is the ratio that each company must maintain in order to qualify each year as an MVTO beneficiary.
      
   2. 
      The actual amounts for the four automobile manufacturers are confidential information, and cannot be released without the express permission of the companies. The amounts range from a ratio in the low-80s to 100, to a ratio in the high-90s to 100. The average of the four amounts is approximately 95 to 100. There is no statutory instrument setting out the ratio requirement for each company.
      

1. Question 37 (SROs – documents and beneficiaries)

• 
  Does this mean that the list may be expanded, and if so, how? If not, would updates be geared toward eliminating SRO companies?
  

1. Reply from Canada

   1. 
      The statement does not mean the list may be expanded. It means that the list would be updated if any changes to the list of qualified manufacturers were required. For example, updates would be required to reflect a change in a company’s name, or to remove companies that have ceased manufacturing.
      

• 
  Does Exhibit EC-6, on the SROs (along with Summary Table of SROs in Exhibit EC-7) contain in their current form all SROs in force? If not, please supply copies of missing ones.
  

1. Reply from Canada

   1. 
      The European Communities stated that it has provided evidence concerning all the SROs. However, Exhibit EC-6 does not contain the current form of all the SROs still in force. Exhibit EC-6 was apparently based on Memorandum D-10-16-2. That memorandum lists the SROs for every company still manufacturing, but it does not include companies that are still in existence but no longer manufacturing. The orders for those companies remain in force, and are publicly available, but they are not in use. An order would only be repealed if the company concerned has ceased to exist, for example as a result of bankruptcy.
      
   2. 
      Canada notes that the European Communities appears to be taking the position that the orders themselves are the only evidence it needs to file in order to make a prima facie case that the SROs are inconsistent with Canada’s WTO obligations. Obviously, Canada disagrees, but given the European position, and the fact that all the orders are publicly available, it was for the European Communities to file copies of every SRO it wanted the Panel to consider. It is now past the deadline set by the Panel for the submission of new evidence, and the European Communities has failed to provide even the most basic elements of proof in respect of the SROs that it has not provided. Nevertheless, given the Panel’s request, Canada is collecting all the missing orders, and will provide them no later than the Second Substantive Meeting. Canada submits, however, that these orders should not be considered as part of the record before the Panel.
      

• 
  Could Canada please indicate which of the SRO beneficiaries are Canadian owned or controlled.
  

1. Reply from Canada

   1. 
      Canada does not have this information readily available. This is because the Government of Canada does not collect this information for the purposes of administering the SROs: the ownership and control of SRO companies are irrelevant to their status under the Auto Pact. However, some of this information may be obtained by conducting searches of the companies’ reports filed with provincial securities regulation bodies. Provincial laws require publicly-traded companies to file reports annually regarding ownership and other information. Canada explained to Japan during the consultations that this was the only way this information could be obtained.
      
   2. 
      In contrast, privately-owned companies are under no obligation to report any information concerning the ownership of their shares. This information can only be obtained directly from the companies, assuming they are willing to provide it. Private companies that are subsidiaries of publicly-traded companies are an exception to this general rule. Information concerning their ownership can be obtained through the public filings of their parent corporations.
      

1. Question 38 (Letters – comprehensiveness of exhibits)

1. Reply from Canada

   1. 
      No. For example, Volvo (Canada) Ltd. also supplied a letter.⁶⁸⁰
      

• 
  Have these same companies written subsequent letters updating the 1965 ones? If so, please provide copies.
  

1. Reply from Canada

   1. 
      All four companies provided subsequent letters in 1968. These letters do not update the original letters, contain no undertakings of any sort, and are irrelevant. They express the companies’ opinions as to how well the system had worked in the first three years, and in some cases make suggestions for future improvements. In view of the Panel’s question, Canada has requested permission from the companies to provide them to the Panel.
      

2. EC Comments on Exhibits submitted with Canada's Reply

   1. 
      With reference to Exhibit CDA-22, the European Communities argues that, as already explained by the European Communities, the Letters of Undertaking submitted by the Big Four in 1965 envisaged that the Canadian Government and the beneficiaries would enter into new “discussion” before the end of model year 1968. The Big Four testified to the US Congress that in the course of those “discussions” the Canadian Government requested them to sign further letters of undertaking providing for an additional increase in CVA.
      
   2. 
      The Big Four did not accede to those requests. The letters contained in Exhibit CDA – 22 were submitted by the Big Four in place of the letters of undertaking requested by the Canadian Government. The Big Four’s reluctance to submit any further undertakings confirms that they did regard the Letters of Undertaking submitted in 1965 as imposing binding requirements upon them, rather than as a mere statement of the “results” they “hoped to achieve”⁶⁸¹. That distinction is clearly made in the following passage of the letter submitted by Ford Motor Company of Canada, Ltd.:
      
   3. 
      “While we are opposed to any further letters of undertaking with respect to production commitments, we do believe that additional increases in our future Canadian production will take place, subject, of course to the normal uncertainties …”
      

• 
  Have other vehicle manufacturers signed letters of this nature as well? If so, please provide copies.
  

4. Reply from Canada

   1. 
      No other manufacturers provided updating letters. Other manufacturers did provide original letters. Canada submits these letters are irrelevant, because they are not requirements within the meaning of Article III:4. Nevertheless, Canada will attempt to provide all the letters, because the Panel has asked for them. They are confidential information and cannot be released without the permission of the originating company. Canada has requested such permission. Letters provided will be submitted as confidential information within the meaning of section 3 of the Working Procedures of the Dispute Settlement Understanding.
      

5. EC Comments on Exhibits submitted with Canada's Reply

   1. 
      With reference to Exhibit CDA-20, the European Communities argues that with only one exception⁶⁸², all the Letters of Undertaking included in this Exhibit are drafted in identical terms. This confirms that, far from being unilateral acts of the beneficiaries, the Letters are little else than an official form filled in by the beneficiaries at the request of the Government.
      
   2. 
      With the same exception, all the Letters were submitted after the conclusion of the Auto Pact in 1965, some of them as a late as in 1984. Nevertheless, all of them continue to refer to the “objectives” of the Auto Pact as the reason for giving the additional CVA commitments. Despite the carefully chosen language, that reference confirms the linkage between the submission of the Letters and the tariff benefits provided for in the Auto Pact.
      
   3. 
      It is worth noting that the Letters place the obligation to comply with the additional CVA requirement on the same level as the obligation to comply with the legally binding terms of the MVTO or of the relevant SRO. Thus, by way of example the Letter of Undertaking submitted by Collins Manufacturing Company Ltd. reads as follows in relevant part:
      

“… our company also undertakes: …

1. To achieve an increase in Canadian Value Added… “ (italics supplied)

4. 
   It is also worth nothing that, like some of the Letters submitted by the Big Four, all the Letters in this Exhibit include the additional undertaking to:
   

5. 
   Furthermore, the Letters state that the beneficiary:
   

5. Questions 39 (annual declarations by beneficiaries)

1. Reply from Canada

   1. 
      Signed declarations do not contain any undertakings. There are no figures contained in the statement, which is in a form of declaration that is prescribed by the MVTO and is identical for all companies. The companies just fill in the blank spaces to identify the company, signing officer, year of importation, etc. The declaration contains only the following statements regarding the production-to-sales ratio and CVA requirements:
      

(d) the vehicles of that class that are to be produced in Canada during the period August 1, 19.... to July 31, 19.... will have a Canadian value added that is equal to or greater than the Canadian value added in respect of all vehicles of that class that were produced by the company in Canada during the base year.

• 
  Have vehicle manufacturers operating under SROs submitted declarations in which they undertake to go above their respective production-to-sales ratio and CVA requirements?
  

1. Reply from Canada

   1. 
      No. There is no requirement in the SROs for manufacturers to submit any declarations, annually or otherwise, and nor do they do so.
      
   2. 
      Canada would draw the Panel’s attention to paragraph 6 of Memorandum D-10-16-2, which states that companies must file a bond or renewal notice annually, in accordance with the terms of their respective orders. Neither the bond nor the “renewal notice” is a declaration. The bond is a security deposit for duties waived that might have to be collected at the end of the importation period in the event of a failure to meet the legal requirements in the order. Some companies have provided bonds with expiry dates; in those cases, when the bond expires, the company must provide a new bond or send a notice renewing the old one.
      

1. Question 40 (annual reports by beneficiaries)

1. Reply from Canada

   1. 
      All the relevant memoranda have been filed as exhibits for the Panel. Japan and the European Communities between them have provided the current versions of memoranda D-10-16-2 and D‑10-16-3. Canada has provided all previous versions of these memoranda (see Exhibits CAD-7-1, 7-3, 7-4, 7-5). The only other memoranda that deal even indirectly with the MVTO and SROs are D-10-16-1 and D-17-3-1 (Exhibits CDA-7-7 and 7-8).
      

• 
  Is it accurate to say that Revenue Canada audits the manufacturers’ reports after the close of each model year, and if so, for what purpose?
  

1. Reply from Canada

   1. 
      Revenue Canada receives copies of the reports at the conclusion of each model year. It then conducts an audit for the purpose of ensuring that the legal requirements of the MVTO 1998 or the applicable SRO have been satisfied.
      
   2. 
      Neither Revenue Canada, nor any other department, conducts an audit or other verification of any figures that may be submitted in respect of the additional letters. Industry Canada has in the past reviewed the figures submitted in respect of the additional letters, but it no longer does so. If a company provides the information, it is simply filed as reported. No other action is taken, regardless of whether the numbers provided indicate that the company has met the letter amounts.
      

• 
  Have any of the manufacturers operating under the MVTO indicated in their annual reports that they have gone above the production-to-sales ratio and CVA requirements of the MVTO? If so, do these indications correspond to what had been undertaken in the signed declarations for the relevant time-periods?
  

1. Reply from Canada

   1. 
      Respecting the first part of the question, companies in their annual reports state their actually achieved ratio and CVA, without reference to whether the required amounts have been exceeded. (See the sample reporting forms at Exhibit EC-14.) However, as a matter of fact, the MVTO companies generally report figures far in excess of their requirements.
      
   2. 
      Respecting the second part of the question, Canada refers the Panel back to Paragraph 1 of Canada’s answer to Question 39, and, in particular, to clauses (c) and (d) of the prescribed form of declaration. As is clear from these clauses, the ratio and CVA requirements referred to in the declaration are always the ratio and CVA achieved by the company in the base year. Nothing is undertaken in the declaration; the company only declares its intention to meet its base-year requirements. Contrary to what is implied in the second part of the question, there can never be a difference between the ratio and CVA referred to in a declaration and the ratio and CVA requirements of the MVTO.
      

• 
  Have any of the manufacturers operating under the SROs indicated in their annual reports that they have gone above the production-to-sales ratio and CVA requirements of their SROs? If so, do these indications correspond to what had been undertaken in the signed declarations for the relevant time-periods?
  

1. Reply from Canada

   1. 
      The answer to the first part of this question is the same as above: companies report just the amounts they have achieved, without reference to the amounts required.
      
   2. 
      Respecting the second part of the question, Canada refers the Panel to paragraph 3 of Canada’s answer to Question 39, and reiterates that manufacturers covered by SROs are not required to file declarations, annually or on any other basis. The legal ratio and CVA requirements are always specified in the applicable SRO.
      

1. Question 41 (claims – the measures and products concerned)

1. Reply from Japan

   1. 
      Throughout its argument, including its claims under GATT Article I and GATS Article II, the Government of Japan has consistently referred to the measures at issue as the "Duty Waiver". Canada implements and applies the Duty Waiver through domestic legislation, regulations, statutory instruments, departmental memoranda and administrative practices. More specifically, Canada implements the Duty Waiver pursuant to: (i) section 115 of the Customs Tariff and section 23 of the Financial Administration Act; (ii) the Motor Vehicles Tariff Order, 1998 (MVTO 1998); (iii) letters of undertaking signed by individual manufacturers upon the demand of the Government of Canada; (iv) Special Remission Orders (SROs) providing for the remission of customs duties on motor vehicles imported by specified manufacturers; (v) departmental memoranda relating to the MVTO 1998 and the SROs; and (vi) implementing measures taken thereunder. The Government of Canada also exercises administrative discretion regarding certain aspects of the Duty Waiver. The scope of the products concerned is all products covered by the Duty Waiver.
      

2. Reply from the EC

   1. 
      The claims submitted by the European Communities under GATT Article I and GATS Article II concern the category of "automobiles", as defined in the MVTO 1998.
      
   2. 
      The measures concerned are the Auto Pact, the MVTO 1998 and the SRO issued to CAMI.
      
   3. 
      All the other claims submitted by the European Communities concern the three categories of motor vehicles defined in the MVTO 1998 (i.e. "automobiles", "specified commercial vehicles" and "buses").
      

1. Question 1 from the EC (SRO beneficiaries)

1. Reply from Canada

   1. 
      Both Japan and the European Communities raised specific allegations only with respect to the Canadian Big Three and Volvo (Canada) as MVTO beneficiaries, and to the two SRO automobile manufacturers, namely CAMI Automotive Inc. and Intermeccanica. That company was described by the European Communities as, "an artisanal manufacturer of hand-built replicas of famous racing cars." Canada, as the defending party, is not required to rebut the contents of the EC’s panel request, but only the evidence presented to the Panel. Accordingly, Canada’s rebuttal focuses on the Big Three, Volvo (Canada) and CAMI.
      

1. Question 2 from the EC (Auto Pact and measures at issue)

1. Reply from Canada

   1. 
      Yes, that is exactly what it means. In Canada, treaties are not self-executing. The provisions of a treaty must be implemented in new or existing domestic law in order to be enforceable. Accordingly, the Auto Pact itself is not a Canadian measure. Rather, the measures are the domestic laws, regulations and requirements implementing the Auto Pact; that is, the MVTO 1998 and the various SROs.
      

1. Question 3 from the EC (SROs' relation to the Auto Pact)

1. Reply from Canada

   1. 
      Paragraph 3 of Annex A to the Auto Pact provides for the issuance of SROs. It states: "The Government of Canada may designate a manufacturer not falling within the categories set out above as being entitled to the benefit of duty-free treatment in respect of the goods described in this Annex.⁶⁸³
      

1. Question 5 from the EC (CVA and cost of sales for U.S. Big Three and Volvo)

1. Reply from Canada

   1. 
      The information is complete as presented. Cost of sales is not relevant to those companies’ CVA requirements, which were calculated on the basis of their performance in the 1963-64 base year.
      

1. Question 1 from Japan (Canada's response to factual assertions)

• 
  to identify the factual statements in the initial arguments of Japan and the European Communities that Canada views as being irrelevant to this dispute and explain the nature of the irrelevancy.
  

• 
  to identify the factual statements in such arguments that Canada views as being unsupported, and provide reasons for such views.
  

• 
  to identify the factual statements in such arguments that Canada disagrees with and explain such disagreement and, if necessary, provide rebuttal evidence.
  

1. Reply from Canada

   1. 
      Japan’s question demonstrates a fundamental misunderstanding of the nature of dispute settlement under the DSU. It is well settled in WTO jurisprudence that as complaining parties, Japan and the European Communities must put forward the factual and legal arguments to establish their claims. Only once the complaining parties have presented sufficient evidence to establish a presumption of a WTO violation does the burden shift to Canada as the defending party to rebut the presumptions⁶⁸⁴
      
   2. 
      As Canada has made clear, neither Japan nor the European Communities has established a prima facie case of violation of any WTO obligation by Canada. Therefore, the burden has not shifted to Canada to rebut their contentions and Canada is not under any legal burden to provide rebuttal evidence.
      
   3. 
      Nevertheless, throughout its argumentation, Canada demonstrated the factual and legal errors of the cases put forward by Japan and the European Communities. It noted where the complainants’ allegations were irrelevant or unsupported and provided ample evidence to rebut those claims. Japan need only look at the Canadian arguments for the response to its question.
      

1. Question 2(1) from Japan (purpose of CVA and ratio requirements)

1. Reply from Canada

   1. 
      The purpose of setting the CVA requirement and the production-to-sales ratio was to ensure that only qualified manufacturers receive the benefits of duty-free importation.
      
   2. 
      The CVA for each manufacturer was calculated for each class of vehicles (automobiles, specified commercial vehicles and buses) in the 1963-1964 base year. CVA levels in subsequent years had to attain this threshold for the manufacturer to continue to qualify for duty-free importation. The amount was expressed as a fixed dollar amount, and has remained constant throughout the operation of the Auto Pact.
      
   3. 
      Similarly the production-to-sales ratio was ascertained for the 1963-1964 base year from the net sales value of all vehicles of each class produced in the base year compared to the net sales value of all vehicles of that class sold for consumption. The ratio had to exceed 75 to 100; it had to attain at least that level in subsequent years to permit duty-free importation. The ratios have remained constant for each manufacturer for each class of vehicles.
      
   4. 
      Today, these requirements ensure that importers claiming a duty exemption are qualified manufacturers. Such manufacturers receive duty-free treatment of imports from all non-NAFTA countries, including Japan, Korea and EC member states.
      

1. Question 2(2) from Japan (similarity of Letters)

1. Reply from Canada

   1. 
      Please refer to the answer provided for the Panel’s Question 17.
      

1. Question 2(3) from Japan (DaimlerChrysler merger and MVTO status)

1. Reply from Canada

   1. 
      There is no question of extending to DaimlerChrysler the privilege to import vehicles duty-free. The question is whether DaimlerChrysler Canada Inc. will retain its MVTO status after the merger. The Government of Canada has not yet made this decision, which will be effective to the date of the merger.
      
   2. 
      The criteria that establish the conditions under which the waiver of customs duties would cease to be granted can be found in the footnote to Annex 1002.1 of the Canada-US FTA.
      

1. Question 2(4) from Japan (beneficiaries importing vehicles other than automobiles)

1. Reply from Canada

   1. 
      The following companies have given permission to the Canadian government to state that they have imported vehicles other than automobiles under the MVTO or an SRO at least once in the last 10 years (note that the resulting total exceeds the number previously referred to):
      

• 
  MVTO: General Motors of Canada Ltd., Ford of Canada Ltd., Chrysler Canada Ltd., Canadian Blue Bird Coach, Ltd., Freightliner Corporation, Thomas Built Buses of Canada Ltd., Prevost Highway Coach Manufacturer, New Flyer.
  

• 
  SRO: Capital Disposal Equipment Inc., MCI Motorcoach Industries, A. Girardin Inc., Navistar International Corporation, Nova BUS, Western Star Trucks Inc., Les entreprises Michel Corbeil Inc.
  

17. Question 2(5) from Japan (imports under the NAFTA and the MVTO/SROs)

1. Reply from Canada

   1. 
      Yes, eligible manufacturers may also import vehicles from the NAFTA area duty free. As stated, "Vehicles are entitled to the remission on condition that the goods are imported into Canada on or after January 18, 1965 from any country entitled to the Most-Favoured-Nation Tariff".
      

1. Question 8 from the EC (Letters – verification of compliance)

• 
  Could Canada please provide any evidence that compliance is no longer verified?
  

1. Reply from Canada

   1. 
      Canada cannot provide evidence of what it is not doing. For decades, Canada accepted the numbers provided by the companies, and performed the calculation for growth CVA on that basis, without making any attempt to determine whether the amounts provided were correct. Since model year 1996, Canada has not even made the calculation. If the companies provided information relating to growth CVA, it was simply filed, and no other action was taken.
      

• 
  How did Canada collect the necessary information to verify compliance? Did Canada request the Big Three to provide that information? If so, on what legal basis? Has that legal basis been amended or repealed? Could Canada please provide a copy of the requests for information addressed to the Big Three? If no requests for information were addressed, why did the Big Three provide that information?
  

1. Reply from Canada

   1. 
      Canada requested the information on an annual basis. There is no legal authority for collecting the information. In contrast, the MVTO – in the Schedule, s. 2(b) – and the SROs provide explicit legal authority for the collection of information relevant to their administration.
      

• 
  Have the Canadian authorities informed officially the Big Three that they are no longer monitoring compliance with the Letters of Undertaking? If so, please provide a copy of the relevant document. If not, how do the Big Three know that they are no longer required to provide the necessary information to enforce compliance?
  

1. Reply from Canada

   1. 
      Canada has not informed the Big Three in writing that it is no longer calculating whether the letter amounts have been met. The companies have been informed verbally, through the regular formal and informal contacts that occur between government officials and company executives.
      

• 
  Did the Big Three report the information required to verify compliance with the Letters of Undertaking at the end of model years 1997 and 1998?
  

4. Reply from Canada

   1. 
      Only two of them provided the information.
      

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