World Trade Organization
* A fully owned subsidiary of Honda Motor Co., of Japan. ** A fully owned subsidiary of Nissan Motor Co. Ltd., of Japan. Reply from CanadaArticle XXVIII(m) of the GATS provides that a "juridical person of another Member" is a juridical person which is either: (i) constituted or otherwise organized under the law of that other Member … or (ii) in the case of the supply of a service through commercial presence, owned or controlled by … juridical persons of that other Member identified under subparagraph (i). Article XXVIII(n)(i) of the GATS provides that a juridical person is "owned" by persons of a Member if more than 50 per cent of the equity interest in it is beneficially owned by persons of that Member. Chrysler Canada Ltd. is now DaimlerChrysler Canada Inc.. It is a wholly-owned subsidiary of the DaimlerChrysler Corporation (a United States company), which in turn is 100 per cent owned by DaimlerChrysler AG of Germany. According to Article XXVIII(m)(i), DaimlerChrysler AG is a juridical person constituted under the law of Germany. DaimlerChrysler Canada Inc. is owned by DaimlerChrysler AG through DaimlerChrysler Corporation. DaimlerChrysler Canada Inc. is therefore a juridical person of Germany, according to Article XXVIII(m)(ii) and XXVIII(n)(i). Similarly, Nissan Canada Inc. is a juridical person of Japan, although according to Japan's Table 2, it is majority-owned by Nissan North America Inc. of the United States. This is because Nissan North America Inc. is itself 100 per cent owned by Nissan Motor Co. Ltd. of Japan. While Volvo Canada Limited was operating as a manufacturer in Canada, it was wholly-owned by Volvo AB of Sweden. It was therefore a juridical person of Sweden by operation of Articles XXVIII(m) and (n). Volvo Canada Limited is now indirectly wholly-owned by the Ford Motor Company. CAMI Automotive Inc. is 50 percent owned by General Motors of Canada Limited and 50 per cent owned by the Suzuki Motor Company of Japan. General Motors of Canada is wholly-owned by the General Motors Corporation of the United States, making it a juridical person of the United States for the purposes of Article XXVIII. CAMI is therefore owned 50/50 by juridical persons of the United States and Japan. Under Article XXVIII(n)(i), ownership by persons of a Member requires an equity interest greater than 50 per cent. Persons of neither the United States or Japan own CAMI individually because neither General Motors nor Suzuki individually owns greater than 50 per cent. Together however, they own 100 per cent of CAMI. CAMI can therefore be said to be a juridical person of both the United States and Japan. Question 35 (vertical integration)Canada argues that in the supply of wholesale trade services for automobiles there is no competition between wholesale trade service suppliers since wholesale suppliers are subordinated to manufacturers and therefore the question of an effect on conditions of competition does not arise. Does vertical integration between manufacturers and suppliers of wholesale trade services exclude any actual or potential competition at the wholesale trade level? To what extent does vertical integration between manufacturers and suppliers of wholesale trade services also exclude competition with respect to sales to retailers? Reply from JapanAs the Appellate Body Report for EC – Bananas III confirmed, even if wholesale trade service suppliers are integrated with manufacturers, to the extent they are engaged in providing wholesale trade services, they are wholesale trade service suppliers. And vertical integration between manufacturers and suppliers of wholesale trade services does not exclude any actual and potential competition at the wholesale trade level, since an integrated manufacturer, in its capacity as a wholesale trade service supplier, competes with other wholesale trade service suppliers as to the sales of automobiles to retail service suppliers (dealers) and the maintenance and expansion of their dealers networks. This type of competition is relevant to this dispute because dealers are consumers of the wholesale trade services provided by the service suppliers in question. To the extent that manufacturers/wholesale trade service suppliers are to sell automobiles to retail service suppliers (i.e. dealers), there is competition between those manufacturers/wholesale trade service suppliers with respect to sales to retailers, notwithstanding their vertical integration. Further, differences in the retail prices of automobiles caused by the Duty Waiver will necessarily affect sales volumes and will lead to differences in profitability in supplying wholesale trade services between manufacturers/wholesale service suppliers. This means that the conditions of competition between manufacturers/wholesale trade service suppliers for sales to retailers will be negatively affected. Reply from the European CommunitiesNo. Although the major wholesale distributors of automobiles present in the Canadian market are vertically integrated with manufacturers762, that does not exclude any actual or potential competition amongst them with respect to the purchase of motor vehicles from manufacturers for wholesale resale. In the first place, some foreign manufacturers of automobiles have little or no presence at all in the Canadian market (e.g., Renault, Peugeot-Citroen, Fiat, Mitsubishi, Proton or Tata). Those potential new entrants have basically three options in order to penetrate into the Canadian market: to set up their own distributors; to designate an independent distributor; or to appoint as a distributor an existing integrated distributor. The last option is not unusual, in particular when the model ranges of the two manufacturers concerned are complementary. By way of example, in the past Chrysler has imported and distributed in Canada motor vehicles manufactured by Mitsubishi, an unrelated Japanese producer (see Exhibit EC-16, Table 1.7). Thus, while it may be true that, as argued by Canada, Honda Canada and Ford Canada would not compete for the distribution in Canada of vehicles manufactured by Ford in the United States, they may compete, not only with other integrated distributors but also with independent distributors, for the distribution of vehicles produced by a foreign manufacturer without a distribution network in Canada. The Tariff Exemption confers upon the beneficiaries a competitive advantage in that market because it lowers their import costs and, therefore, gives them the possibility to offer better purchasing terms to the foreign manufacturer. Secondly, even with respect to motor vehicles of the parent company’s brand, vertically integrated distributors may face competition from parallel importers. Regarding the question, "To what extent does vertical integration between manufacturers and suppliers of wholesale trade services also exclude competition with respect to sales to retailers?": Canada’s argument is built on the wrong assumption that wholesale distribution services are provided by the wholesalers exclusively to the manufacturers. The truth, however, is that wholesaler distributors of automobiles act as intermediaries between the manufacturers and the retailers (and in some cases final consumers, e.g., in the case of so-called "fleet sales" to big purchasers). They provide a service to retailers as much as to the manufacturers. In fact, except in the rare cases where wholesale distributors of automobiles act as mere agents for the manufacturers, the "buyer" of the service, i.e. the person who actually "pays" for the distribution service, is the retailer and not the manufacturer. Quite clearly, vertical integration between manufacturers and wholesale distributors of automobiles, even if it were complete, would not exclude per se competition among wholesale distributors with respect to sales to retailers and final consumers. Vertical integration has the only consequence that Honda Canada and Ford Canada cannot compete to resell the same automobiles to retailers. But it does not prevent them from competing in order to resell to dealers automobiles manufactured by their respective parents which are directly competitive and substitutable with each other. In other words, the absence of intra-brand competition among wholesalers does not exclude inter-brand competition. Reply from CanadaCanada notes that the arguments in question are found in its initial response. It is not clear if the question refers to vertical integration in the motor vehicle industry only, or to vertical integration generally. In the motor vehicle industry, a combination of vertical integration and exclusive distribution arrangements does exclude any actual or potential competition at the wholesale trade level. The same is not necessarily true of other industries. For example, it is not the case in the bananas business, where even those companies that were vertically integrated had the "capability and opportunity to enter the wholesale service market".763 Contrary to what was implied by the European Communities in its argument, the Appellate Body’s findings in EC – Bananas III in respect of integrated wholesalers were specific to the facts of the case. The Appellate Body stated that: "even if a company is vertically-integrated, … to the extent that it is also engaged in providing "wholesale trade services" and is therefore affected in that capacity by a particular measure of a Member in its supply of those ‘wholesale trade services’, that company is a service supplier within the scope of the GATS".764 (emphasis added) The fact that a wholesale service supplier is integrated does not mean that it is necessarily outside the scope of the GATS, but nor does it mean that it necessarily falls within the scope of the GATS either. The determining factor is whether that service supplier is affected in its capacity as a service supplier and in its supply of those services. The nature of the motor vehicle industry is such that there is no competition among wholesale service suppliers in the supply of wholesale trade services. Japan confirmed this in its arguments. [Regarding the question "to what extent does vertical integration between manufacturers and suppliers of wholesale trade services also exclude competition with respect to sales to retailers?":] If the EC’s reference to retailers was meant to suggest that retailers could choose among wholesale service suppliers, the suggestion is wrong. Wholesaling by definition entails sales to retailers. Wholesalers purchase goods from manufacturers and resell them to retailers. A headnote to Division 6 of the CPC states that: "The principal services rendered by wholesalers and retailers may be characterized as reselling merchandise, accompanied by a variety of related, subordinated services …". (emphasis added) "Reselling" necessarily implies that the reseller has purchased the good in the first place. It is uncertain to what extent the commercial presences of the motor vehicle manufacturers identified by the complainants as "wholesalers" have purchased the vehicles from the manufacturers. If they have not, they cannot be said to be wholesalers at all. The complainants have offered no evidence on this point. Even assuming that these commercial presences are wholesalers, they do not compete for sales to retailers for the same reason that they do not compete to distribute the vehicles of particular manufacturers. The so-called wholesalers have exclusive distribution arrangements with the manufacturers. Accordingly, retailers of specific brands of vehicles cannot select among wholesale service suppliers for the supply of those vehicles. Retail dealers of Honda automobiles cannot for example, approach General Motors of Canada and ask General Motors to supply them with Hondas from the Honda Motor Company of Japan. Those retailers must rely on Honda Canada Inc. to provide those vehicles. It is possible that the European Communities was suggesting that duty-free treatment may influence which brands of vehicles retailers choose to sell and that this consequentially influences their choice of service supplier. However, this simply underscores that what benefits from the duty-free treatment is particular goods (the vehicles) and that there is no competition in the provision of distribution services for those goods. To contend that the measure affects wholesale service suppliers through retailers implies that every measure affecting goods not only affects wholesale service suppliers of those goods but also the retailers of the goods as well. No measures affecting goods would not also "affect" services. The EC’s argument would obliterate the distinction among the three categories of measures by the Appellate Body in EC – Bananas III.765 Question 56 (the measures at issue and GATS Article V)In its reply to question 33 from the Panel, Canada said that if the Panel found that the duty waiver fell within the scope of the GATS it agreed with the United States that with respect to any more favourable treatment allegedly accorded to US service suppliers, the measures would be subject to the MFN exception conferred by Article V:1 of the GATS. Could Canada elaborate further on how the mesures at issue could be considered consistent with the paragraph 6 of Article V, concerning the treatment of service suppliers of Members not parties to the economic integration agreement? Reply from CanadaCanada did not invoke the Article V:1 exception, because the tariff measures in question do not affect trade in services and hence are not subject to the GATS. Article V:1 of the GATS covers agreements liberalizing trade in services but it does not cover tariff measures taken pursuant to agreements liberalizing trade in goods, such as those creating free-trade areas or customs unions. Canada submits that such measures are not exempted under Article V:1 because, until the EC and Japanese claims in this case, no one, including the drafters of the GATS and those involved in EC – Bananas III, had ever thought that tariff measures were within the scope of the GATS. Canada stated that if the Panel nevertheless found that the measures according duty-free treatment fell within the scope of the GATS, Canada would endorse the suggestion of its NAFTA partner, the United States, that by extension, Article V:1 of the GATS would apply to any alleged MFN violation arising from a provision of the NAFTA. This would be because the NAFTA is, among other things, an agreement liberalizing trade in services and therefore falls within Article V:1 of the GATS. It is not entirely clear to Canada why the Panel is raising Article V:6 in the context of Article V:1. Article V:6 of the GATS creates an obligation on Members to grant service suppliers that are juridical persons of another Member constituted under the laws of a party to an agreement liberalizing trade in services the treatment granted under the services liberalizing agreement, provided that the juridical person engages in substantive business operation in the territories of the parties to the services liberalization agreement. Because neither of the complainants claimed a violation of Article V:6 in its request for a panel, alleged violations of Article V:6 of the GATS are not properly within the Panel's terms of reference. If the Panel's question is intended to suggest that an inconsistency with Article V:6 would negate the exception afforded by Article V:1, Canada cannot agree. In contrast with paragraphs (a) and (b) of Article V:1, there is nothing in Article V:6 itself or elsewhere in Article V to suggest that Article V:6 constitutes a condition limiting the application of the Article V:1 exception. If it had been intended as such a condition, it would have been included in Article V:1 rather than drafted as an independent obligation. In any event, the NAFTA fully satisfies Article V:6. The treatment granted by the NAFTA chapters that specifically address trade in services (Chapters 11, 12 and 14) is granted to service suppliers that are juridical persons of other Members constituted under the laws of the NAFTA parties and engaging in substantial business activities there. To the extent that the tariff treatment granted by the trade in goods provisions of the NAFTA affects trade in services – and in Canada's view it does not – that tariff treatment is also granted to service suppliers that are juridical persons of other Members constituted under the laws of the NAFTA parties and engaging in substantial business activities there. This includes Canada's duty-free treatment for qualifying manufacturers, as permitted under the NAFTA. Also, hypothetically, what would be Canada's justification for more favourable treatment accorded to non-NAFTA service suppliers? Canada does not understand the question but would be pleased to receive a clarification of it and an opportunity to respond. [The Panel decided not to pursue this matter.] Question 57 (the measures at issue and de facto discrimination)The EC and Japan claim that Auto-Pact manufacturers, as suppliers of wholesale trade services, are accorded more favourable treatment in a manner which constitutes de facto discrimination against other like service suppliers. Does this imply that Auto-Pact manufacturers and other service suppliers receive formally identical treatment? How could this relate to the Auto-Pact manufacturers being a closed list? Reply from JapanThe claim of the Government of Japan with regard to the eligibility restriction is that Japanese service suppliers are de facto excluded from ever qualifying for the Duty Waiver due to various conditions set forth under the MVTO 1998 and the SROs as outlined in Japan's arguments as well as the fact that Auto Pact Manufacturers are limited to those on "a closed-list". Since GATS Article II applies to de facto discrimination as well as de jure discrimination, it is not necessary to address the significance of "formally identical treatment" in the context of this dispute. Reply from the European CommunitiesNo. The treatment received by the Big Three and CAMI is formally, and not simply de facto, more favourable than that accorded to the other suppliers of wholesale distribution services for automobiles. The European Communities claims that the Tariff Exemption results in de facto discrimination in the sense that, although those differences in treatment are not formally based on the origin of the service suppliers, de facto US suppliers receive more favourable treatment than the suppliers of other Members. The fact that the list of beneficiaries was frozen as of 1989 reinforces the discriminatory effects of the Tariff Exemption, because it means that other suppliers of distribution services for automobiles cannot obtain the Tariff Exemption, even if they are also established as manufacturers in Canada and meet CVA and ratio requirements equivalent to those imposed upon the beneficiaries. Finally, the fact that the list was frozen at the request of the United States evidences that the effects of the Tariff Exemption are by no means the result of geography or accident, as claimed by Canada, but the intended consequence of a deliberate policy to provide an advantage to the US suppliers over the suppliers of other Members. Question 59 (origin of wholesale trade service suppliers)Could Japan please clarify on what basis it has classified three suppliers of wholesale trade services for buses and specified commercial vehicles as Canadian in Exhibit JPN-50. Could Japan please provide necessary material to support the Canadian origin of these suppliers. As for the nationality of the “juridical person”, Article XXVIII (m)(i) and (ii) and (n)(i) of the GATS prescribe as follows: (m) “juridical person of another Member” means a juridical person which is either: (i) constituted or otherwise organized under the law of that other Member, and is engaged in substantive business operations in the territory of that Member or any other Member; or (ii) in the case of the supply of a service through commercial presence, owned or controlled by: 1. natural persons of that Member; or 2. juridical persons of that other Member identified under subparagraph (i);
(i) “owned” by persons of a Member if more than 50 per cent of the equity interest in it is beneficially owned by persons of that Member; … Based on the information provided by the Government of Canada in its response to Question (4) of the Government of Japan, the three suppliers of wholesale trade services classified as Canadian in Exhibit JPN-50, which are A. Girardin Inc., Les Enterprises Michel Corbeil Inc., and Western Star Trucks Inc., have imported vehicles from other countries into Canada. T. Those companies provide services through a commercial presence in Canada. If those companies are not owned or controlled by natural persons of a country other than Canada or juridical persons of countries other than Canada identified under subparagraph (m)(i), those companies are not “juridical persons of another Member”, and it follows that those companies are juridical persons of the Member (Canada). On the homepage of the Canadian Department of Industry (Industry Canada) (http://strategis.ic.gc.ca/), Industry Canada stated that “Both Thomas Built and Canadian Bluebird are American-owned. A. Girardin and Michel Corbeil Enterprises Inc. are wholly-owned Canadian companies.” (See page 3 of attachment 1 to this response [assigned name: Exhibit JPN-51].the) Therefore, Japan concluded that A. Girardin and Michel Corbeil Enterprises Inc. are service suppliers of Canadian origin. On the homepage of Industry Canada (http://strategis.ic.gc.ca/), it is also indicated that ownership of Les Enterprises Michel Corbeil Inc. (see attachment 2 [assigned name: Exhibit JPN-51]) and Michel Corbeil Enterprises Inc. (see attachment 3 [assigned name: Exhibit JPN-51]) is Canadian. This homepage also indicates that the ownership of Western Star Trucks Inc. is Canadian (see attachment 1 [assigned name: Exhibit JPN-51]). Based on the information from Industry Canada on the ownership of those three companies, it is reasonable to presume that more than 50 per cent of their equity interests is owned by Canadians. Please see attachments 1-3 [assigned name: Exhibit JPN-51], which substantiates Japan's above conclusion. Question 60 (origin of wholesale trade service suppliers)Could Canada please confirm that the three suppliers of wholesale trade services for buses and specified commercial vehicles, listed as Canadian in Exhibit JPN-50, are of Canadian origin. The three companies listed as Canadian in Exhibit JPN-50 are A.Girardin Inc., Les Entreprises Michel Corbeil Inc., and Western Star Trucks Inc. Canada has the following information about their “origin”: A.Girardin Inc. and Les Entreprises Michel Corbeil Inc. are both privately-owned companies incorporated in Canada. To Canada’s knowledge, both companies are Canadian-owned. Western Star Trucks Inc. is a company incorporated in Canada. It is wholly-owned by a Canadian-incorporated company, Western Star Trucks Holdings Ltd., which in turn is controlled by a Singapore-incorporated company, Western Star International, which owns 42 per cent of Western Star Holdings. Canada notes that Japan has not adduced any evidence in the record to support its assertion that the three companies at issue are “suppliers of wholesale trade services”. As Canada noted in its Response of 25 June 1999 to the Panel’s Question 35, wholesalers purchase goods and resell them to retailers. A headnote to Division 6 of the CPC states that: “the principal services rendered by wholesalers and retailers may be characterized as reselling merchandise…” Manufacturers that import vehicles but do not resell them to retailers are not “suppliers of wholesale trade services”. Eligible manufacturers that do import buses or SCVs are not necessarily “wholesale trade service suppliers”. For example, they may import bus or SCV chassis (which are considered to be vehicles under the MVTO and the SROs) as inputs for finished vehicles of their own manufacture; they may re-import vehicles of their own manufacture that have been exported for modification in other countries; or they may import vehicles as retailers (i.e. for direct sale to end-users). None of these activities would constitute the supply of wholesale trade services. In its Response of 25 June 1999 to Japan’s Question 2(4), Canada stated only that the three companies in question, among others, “have imported vehicles other than automobiles under the MVTO or an SRO at least once in the last 10 years”. At paragraph 131 of its Second Written Submission of 2 July 1999, Japan subsequently declared all of these companies to be “wholesale trade service suppliers”. It has offered no evidence to substantiate this assertion. Questions and replies relating to claims under Article XVII of the GATSQuestion 28 (services supplied through mode 1)The EC quotes some examples of services potentially affected by the CVA, which can be supplied through mode 1 and which cannot be considered to be inherently disadvantaged due to their foreign character. Could the EC and Japan please identify all services sectors affected by the C VA which can be supplied through mode 1. Reply from JapanSince the CVA applies to services in general and only the Government of Canada has full information on the types of services that are or could be included in the CVA, it is not possible for the Government of Japan to identify all service sectors affected by the CVA which can be supplied through mode 1. However, only one example of discrimination is sufficient to establish a violation of GATS Article XVII. Japan's initial argumentation lists three general categories of services that, on their face, would qualify for inclusion in the CVA calculation. These services could be supplied through mode 1. For example: Repair and maintenance services – These services could be supplied through mode 1 in situations where machinery and/or equipment would be repaired with the technical advice rendered through telecommunications means. Examples of such machinery and/or equipment include computer hardware, control boards, and moveable mechanical equipment and devices. Other examples include repair and maintenance services of high-tech machines supplied through telecommunications means from outside of Canada. Engineering Services – These services could be supplied through mode 1 in situations where experimental work and/or product development work in relation with motor vehicle manufacturing is conducted in the form of technical advice rendered through telecommunications means. Examples of such services include engineering services related to the design of a motor vehicle assembly line supplied through telecommunications means from outside of Canada. Engineering services related to the operation of such line of production could also be supplied through telecommunications means from outside of Canada. As a result, engineering services are not inherently domestic as incorrectly suggested by the Government of Canada. For example, it is possible for engineers outside of Canada to monitor the production process of facilities located in Canada. General Services – Accounting, data processing, software implementation, and management consulting are a few examples of general services that could be supplied through mode 1. Examples of such services include production data processing services rendered through telecommunications means from outside of Canada, software that can be upgraded through telecommunications means, book keeping that could be performed through telecommunications means, management, corporate governance and human resources studies that could be performed through telephone conference by foreign firms upon receipt of relevant information from the manufacturer. Reply from the European CommunitiesAs a preliminary remark, it should be noted that the examples quoted by the European Communities included not only examples of supply through mode 1 ("cross-border" supply), but also examples of supply through mode 2 ("consumption abroad"). The European Communities considers that in principle all the service sectors listed in its initial argumentation (i.e. "non-life insurance services", "repair services incidental to machinery and equipment", "engineering services", "professional services", "computer related services", "banking services", "telecommunication services", "travel services" and other "business services") can be supplied through mode 1 and/or mode 2. Further, most of them, if not all, can be supplied through mode 1. As regards, "non-life insurance services" (CPC 8129) and "engineering services" (CPC 8672), Canada applies some limitations to the supply through mode 1. While for the reasons explained elsewhere, those limitations do not exclude a violation of Article XVII, their very existence demonstrates that provision through mode 1 is not impossible. The same is true of many sub-sectors falling within the category of "general and administrative expenses" such as "accounting, auditing and book-keeping services" (CPC 862766); "management consulting services" (CPC 865767); "placement and supply services of personnel" (CPC 872768); "travel agencies and tour operator services" (CPC 7471769); "telecommunication services" (sub-sectors a), b), c), d) e) and f)770); and "banking services"771. As regards the remaining services mentioned in the EC argument, it is not difficult to conceive examples of supply though mode 1: Foreign legal consultants (CPC 861*): the Canadian Association of Auto Pact beneficiaries requests from a Brussels law firm with no commercial presence in Canada, to give a legal opinion on the WTO compatibility of the Auto Pact. In response, that law firm sends by fax a memorandum setting out the reasons why the Auto Pact violates the WTO Agreement. Taxation services (CPC 863*): Intermeccanica is considering to set up a subsidiary in the EU. It requests a tax consultant based in Brussels to advise on what member State would constitute the best location from a tax point of view. Both the request and the answer are delivered through e‑mail. Computer related services: GM Canada asks Siemens Germany to design the computer hardware and software for its new factory in Quebec (CPC 841 and 842*); GM Canada outsources the processing of bills to a company in Bangalore (India) (CPC 843*); GM Canada subscribes to the electronic version of the EC Official Journal published in Luxembourg (CPC 844*). Technical testing and analysis services (CPC 8676): the R & D department of GM Canada sends a sample of a new ecological fuel made from maple syrup to the Max Planck Institute in Hamburg for further testing. The results are delivered by e-mail. Arguably, a few of the sub-sectors identified by the European Communities (e.g., "repair services incidental to machinery and equipment" (CPC 8861 to 8866) and "hotel and lodging" (CPC 641) and "food and beverage serving" (CPC 642/3) cannot be supplied through mode 1. Nevertheless, as evidenced by the examples provided by the European Communities, all of them can be provided though mode 2. Question 30 ("like" service suppliers)Canada argues that there are no Canadian wholesale distribution service suppliers which are "like" Japanese suppliers. Could Canada please clarify on what grounds Intermeccanica should not be considered "like" other suppliers of wholesale trade services for automobiles. Could it also clarify on what grounds Canadian suppliers of wholesale trade services for buses and specialised commercial vehicles should not be considered "like" suppliers of wholesale trade services for automobiles. Reply from CanadaCanada notes that it is Japan that has the burden of proof in making its claim that Intermeccanica is a "like" service supplier. Japan has provided no evidence or explanation for this claim. Japan has simply asserted that "Intermeccanica is a Canadian service supplier within the meaning of Article XVII of the GATS". It neither substantiated that assertion nor addressed whether the services Intermeccanica allegedly supplies are wholesale distribution trade services. In keeping with the well-established principle, confirmed by the Appellate Body in United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India772, that the initial burden of proof lies on the complaining party to establish a prima facie case, the onus is on Japan to explain why Intermeccanica should be considered "like" other suppliers of wholesale trade services for automobiles. Japan has failed to meet its burden. The onus has not shifted to Canada because Japan has not made out a prima facie case. In any event, there are two fundamental reasons why Intermeccanica is not "like" other suppliers of wholesale trade services for automobiles. In the first place, it is not a supplier of wholesale trade services at all. As the European Communities acknowledged, it is a producer of automobiles. It is not a wholesaler and is irrelevant for the purposes of a GATS analysis. It does not import automobiles for resale or distribute them at all. Secondly, even if it were a wholesale distribution supplier, which it clearly is not, its size and sales volumes, and the vehicles it "distributes", are vastly different from those of any of the commercial presences identified by Japan as wholesale distribution service suppliers. Intermeccanica has 8 employees.773 It has never produced more than 22 vehicles in a year. The vehicles it does produce are hand-built replicas of famous automobiles. It is simply preposterous to contend that it is a potential competitor774 for the wholesale distribution business of companies like Toyota or Honda, which import tens of thousands of cars each year. Even if Intermeccanica were a wholesale distribution service supplier, it would be utterly "unlike" the foreign service suppliers listed by Japan. Reply from CanadaRegarding "on what grounds Canadian suppliers of wholesale trade services for buses and specialised commercial vehicles should not be considered 'like' suppliers of wholesale trade services for automobiles", again, the burden of proof lies with Japan to substantiate its allegations. Again, it has failed to do so. In its initial arguments, Japan stated that: … Auto Pact Manufacturers of Canadian origin manufacture buses and commercial motor vehicles, which Japanese automobile industries may export to meet demand if latent demand exists. The Japanese motor vehicle industry may also offer wholesale trade services for such buses and commercial vehicles if such demand exists. This demonstrates that there are Canadian motor vehicle wholesale trade service suppliers in Canada. Of course, Japan has demonstrated nothing of the sort. It has simply asserted that there are Canadian manufacturers of buses and (specified) commercial vehicles. However, it has failed to adduce any evidence whatsoever that there are Canadian suppliers of wholesale trade services for buses and specified commercial vehicles. The manufacture of a good and the wholesale distribution of that good are two distinct activities. The GATS arguments of both complainants with respect to the effect of duty-free treatment seek to erase this distinction. The Panel must not permit this. Whether Canadian suppliers of wholesale trade services for buses and specified commercial vehicles are "like" Japanese suppliers of wholesale trade services for automobiles should be determined on a case-by-case basis, just as it must with like goods.775 This determination is rendered impossible (and moot) by Japan’s failure to identify any Canadian suppliers of wholesale trade services for buses and specified commercial vehicles. Moreover, such "likeness" cannot be assumed. In the passage quoted above from Japan’s arguments, Japan did not even claim that its automobile manufacturers produce, or have the ability to produce, buses or specified commercial vehicles, let alone that they or their related commercial presences in Canada are capable of providing wholesale distribution services for either class of vehicle. Question 31 (commitments in Canada's GATS Schedule)The entry B. "wholesale trade services" in Canada's schedule does not explicitly exclude wholesale trade services for motor vehicles. On what grounds is Canada claiming that it is excluded? Reply from CanadaThe entry B. "Wholesale trade services" at page 47 of Canada’s Schedule of Specific Commitment776 does explicitly exclude wholesale trade services for motor vehicles. It does this in the first column, which indicates the sector or sub-sector to which Canada’s commitments apply, by noting at the bottom of that column that the commitments apply to the services in CPC 622 only. CPC 622 covers certain wholesale trade services excluding those for motor vehicles. CPC 622 falls under Division 62 of the CPC which is entitled "Commission Agents’ and Wholesale Trade Services, Except of Motor Vehicles". (emphasis added) Canada argues that the commitment under CPC 6111, listed under retailing services, does not extend to wholesale trade services. Why did Canada not indicate in this entry the exclusion of wholesale trade of motor vehicles? Reply from CanadaCanada did indicate the exclusion of wholesale trade services for motor vehicles in this entry by scheduling its commitment under "Retailing Services". Article XVII of the GATS extends only to specific commitments. That is, it is binding on Members only in sectors and sub-sectors in respect of which they have made commitments.777 By scheduling its CPC 6111 commitments in the "Retailing Services" sector only, Canada did not bind itself in respect of other sectors such as "Wholesale trade services". Question 32 (the CVA requirements and mode 4)Canada argues that most of the qualifying manufacturers exceed their CVA requirements on the basis of labour costs alone. Could Canada please provide factual information on those manufacturers who do not meet the CVA requirements on the basis of labour costs alone. To what extent do labour costs include the purchase of services which could be supplied by natural persons under mode 4? Reply from CanadaAll of the MVTO manufacturers meet their CVA requirements on the basis of labour costs alone, as do all SRO manufacturers operating under a base-year CVA requirement. Four SRO manufacturers operating under 40 or 50 per cent CVA requirements have, in some recent years, not met those requirements on the basis of labour costs alone. The cost of any service supplied by mode 4 is fully CVA-eligible. Services supplied by mode 4 are not included in the heading for labour costs, but may be included under other CVA headings. Question 34 (ownership and control)(See p. 314) Question 35 (vertical integration)Canada argues that in the supply of wholesale trade services for automobiles there is no competition between wholesale trade service suppliers since wholesale suppliers are subordinated to manufacturers and therefore the question of an effect on conditions of competition does not arise. Does vertical integration between manufacturers and suppliers of wholesale trade services exclude any actual or potential competition at the wholesale trade level? To what extent does vertical integration between manufacturers and suppliers of wholesale trade services also exclude competition with respect to sales to retailers? Reply from JapanAs the Appellate Body Report for EC – Bananas III confirmed, even if wholesale trade service suppliers are integrated with manufacturers, to the extent they are engaged in providing wholesale trade services, they are wholesale trade service suppliers. And vertical integration between manufacturers and suppliers of wholesale trade services does not exclude any actual and potential competition at the wholesale trade level, since an integrated manufacturer, in its capacity as a wholesale trade service supplier, competes with other wholesale trade service suppliers as to the sales of automobiles to retail service suppliers (dealers) and the maintenance and expansion of their dealers networks. This type of competition is relevant to this dispute because dealers are consumers of the wholesale trade services provided by the service suppliers in question. To the extent that manufacturers/wholesale trade service suppliers are to sell automobiles to retail service suppliers (i.e. dealers), there is competition between those manufacturers/wholesale trade service suppliers with respect to sales to retailers, notwithstanding their vertical integration. Further, differences in the retail prices of automobiles caused by the Duty Waiver will necessarily affect sales volumes and will lead to differences in profitability in supplying wholesale trade services between manufacturers/wholesale service suppliers. This means that the conditions of competition between manufacturers/wholesale trade service suppliers for sales to retailers will be negatively affected. Reply from the European CommunitiesNo. Although the major wholesale distributors of automobiles present in the Canadian market are vertically integrated with manufacturers778, that does not exclude any actual or potential competition amongst them with respect to the purchase of motor vehicles from manufacturers for wholesale resale. In the first place, some foreign manufacturers of automobiles have little or no presence at all in the Canadian market (e.g., Renault, Peugeot-Citroen, Fiat, Mitsubishi, Proton or Tata). Those potential new entrants have basically three options in order to penetrate into the Canadian market: to set up their own distributors; to designate an independent distributor; or to appoint as a distributor an existing integrated distributor. The last option is not unusual, in particular when the model ranges of the two manufacturers concerned are complementary. By way of example, in the past Chrysler has imported and distributed in Canada motor vehicles manufactured by Mitsubishi, an unrelated Japanese producer (see Exhibit EC-16, Table 1.7). Thus, while it may be true that, as argued by Canada, Honda Canada and Ford Canada would not compete for the distribution in Canada of vehicles manufactured by Ford in the United States, they may compete, not only with other integrated distributors but also with independent distributors, for the distribution of vehicles produced by a foreign manufacturer without a distribution network in Canada. The Tariff Exemption confers upon the beneficiaries a competitive advantage in that market because it lowers their import costs and, therefore, gives them the possibility to offer better purchasing terms to the foreign manufacturer. Secondly, even with respect to motor vehicles of the parent company’s brand, vertically integrated distributors may face competition from parallel importers. Regarding the question, "To what extent does vertical integration between manufacturers and suppliers of wholesale trade services also exclude competition with respect to sales to retailers?": Canada’s argument is built on the wrong assumption that wholesale distribution services are provided by the wholesalers exclusively to the manufacturers. The truth, however, is that wholesaler distributors of automobiles act as intermediaries between the manufacturers and the retailers (and in some cases final consumers, e.g., in the case of so-called "fleet sales" to big purchasers). They provide a service to retailers as much as to the manufacturers. In fact, except in the rare cases where wholesale distributors of automobiles act as mere agents for the manufacturers, the "buyer" of the service, i.e. the person who actually "pays" for the distribution service, is the retailer and not the manufacturer. Quite clearly, vertical integration between manufacturers and wholesale distributors of automobiles, even if it were complete, would not exclude per se competition among wholesale distributors with respect to sales to retailers and final consumers. Vertical integration has the only consequence that Honda Canada and Ford Canada cannot compete to resell the same automobiles to retailers. But it does not prevent them from competing in order to resell to dealers automobiles manufactured by their respective parents which are directly competitive and substitutable with each other. In other words, the absence of intra-brand competition among wholesalers does not exclude inter-brand competition. Reply from CanadaCanada notes that the arguments in question are found in its initial response on these points. It is not clear if the question refers to vertical integration in the motor vehicle industry only, or to vertical integration generally. In the motor vehicle industry, a combination of vertical integration and exclusive distribution arrangements does exclude any actual or potential competition at the wholesale trade level. The same is not necessarily true of other industries. For example, it is not the case in the bananas business, where even those companies that were vertically integrated had the "capability and opportunity to enter the wholesale service market".779 Contrary to what was implied by the European Communities, the Appellate Body’s findings in EC – Bananas III in respect of integrated wholesalers were specific to the facts of the case. The Appellate Body stated that: "even if a company is vertically-integrated, … to the extent that it is also engaged in providing "wholesale trade services" and is therefore affected in that capacity by a particular measure of a Member in its supply of those ‘wholesale trade services’, that company is a service supplier within the scope of the GATS".780 (emphasis added) The fact that a wholesale service supplier is integrated does not mean that it is necessarily outside the scope of the GATS, but nor does it mean that it necessarily falls within the scope of the GATS either. The determining factor is whether that service supplier is affected in its capacity as a service supplier and in its supply of those services. The nature of the motor vehicle industry is such that there is no competition among wholesale service suppliers in the supply of wholesale trade services. Japan confirmed this in its arguments. [Regarding the question "to what extent does vertical integration between manufacturers and suppliers of wholesale trade services also exclude competition with respect to sales to retailers?":] If the EC’s reference to retailers was meant to suggest that retailers could choose among wholesale service suppliers, the suggestion is wrong. Wholesaling by definition entails sales to retailers. Wholesalers purchase goods from manufacturers and resell them to retailers. A headnote to Division 6 of the CPC states that: "The principal services rendered by wholesalers and retailers may be characterized as reselling merchandise, accompanied by a variety of related, subordinated services …". (emphasis added) "Reselling" necessarily implies that the reseller has purchased the good in the first place. It is uncertain to what extent the commercial presences of the motor vehicle manufacturers identified by the complainants as "wholesalers" have purchased the vehicles from the manufacturers. If they have not, they cannot be said to be wholesalers at all. The complainants have offered no evidence on this point. Even assuming that these commercial presences are wholesalers, they do not compete for sales to retailers for the same reason that they do not compete to distribute the vehicles of particular manufacturers. The so-called wholesalers have exclusive distribution arrangements with the manufacturers. Accordingly, retailers of specific brands of vehicles cannot select among wholesale service suppliers for the supply of those vehicles. Retail dealers of Honda automobiles cannot for example, approach General Motors of Canada and ask General Motors to supply them with Hondas from the Honda Motor Company of Japan. Those retailers must rely on Honda Canada Inc. to provide those vehicles. It is possible that the European Communities was suggesting that duty-free treatment may influence which brands of vehicles retailers choose to sell and that this consequentially influences their choice of service supplier. However, this simply underscores that what benefits from the duty-free treatment is particular goods (the vehicles) and that there is no competition in the provision of distribution services for those goods. To contend that the measure affects wholesale service suppliers through retailers implies that every measure affecting goods not only affects wholesale service suppliers of those goods but also the retailers of the goods as well. No measures affecting goods would not also "affect" services. The EC’s argument would obliterate the distinction among the three categories of measures by the Appellate Body in EC – Bananas III.781 Question 59 (origin of wholesale trade service suppliers)Could Japan please clarify on what basis it has classified three suppliers of wholesale trade services for buses and specified commercial vehicles as Canadian in Exhibit JPN-50. Could Japan please provide necessary material to support the Canadian origin of these suppliers. As for the nationality of the “juridical person”, Article XXVIII (m)(i) and (ii) and (n)(i) of the GATS prescribe as follows: (m) “juridical person of another Member” means a juridical person which is either: (i) constituted or otherwise organized under the law of that other Member, and is engaged in substantive business operations in the territory of that Member or any other Member; or (ii) in the case of the supply of a service through commercial presence, owned or controlled by: natural persons of that Member; or juridical persons of that other Member identified under subparagraph (i);
(i) “owned” by persons of a Member if more than 50 per cent of the equity interest in it is beneficially owned by persons of that Member; … Based on the information provided by the Government of Canada in its response to Question (4) of the Government of Japan, the three suppliers of wholesale trade services classified as Canadian in Exhibit JPN-50, which are A. Girardin Inc., Les Enterprises Michel Corbeil Inc., and Western Star Trucks Inc., have imported vehicles from other countries into Canada. T. Those companies provide services through a commercial presence in Canada. If those companies are not owned or controlled by natural persons of a country other than Canada or juridical persons of countries other than Canada identified under subparagraph (m)(i), those companies are not “juridical persons of another Member”, and it follows that those companies are juridical persons of the Member (Canada). On the homepage of the Canadian Department of Industry (Industry Canada) (http://strategis.ic.gc.ca/), Industry Canada stated that “Both Thomas Built and Canadian Bluebird are American-owned. A. Girardin and Michel Corbeil Enterprises Inc. are wholly-owned Canadian companies.” (See page 3 of attachment 1 to this response [assigned name: Exhibit JPN-51].the) Therefore, Japan concluded that A. Girardin and Michel Corbeil Enterprises Inc. are service suppliers of Canadian origin. On the homepage of Industry Canada (http://strategis.ic.gc.ca/), it is also indicated that ownership of Les Enterprises Michel Corbeil Inc. (see attachment 2 [assigned name: Exhibit JPN-51]) and Michel Corbeil Enterprises Inc. (see attachment 3 [assigned name: Exhibit JPN-51]) is Canadian. This homepage also indicates that the ownership of Western Star Trucks Inc. is Canadian (see attachment 1 [assigned name: Exhibit JPN-51]). Based on the information from Industry Canada on the ownership of those three companies, it is reasonable to presume that more than 50 per cent of their equity interests is owned by Canadians. Please see attachments 1-3 [assigned name: Exhibit JPN-51], which substantiates Japan's above conclusion. Question 60 (origin of wholesale trade service suppliers)Could Canada please confirm that the three suppliers of wholesale trade services for buses and specified commercial vehicles, listed as Canadian in Exhibit JPN-50, are of Canadian origin. The three companies listed as Canadian in Exhibit JPN-50 are A.Girardin Inc., Les Entreprises Michel Corbeil Inc., and Western Star Trucks Inc. Canada has the following information about their “origin”: A.Girardin Inc. and Les Entreprises Michel Corbeil Inc. are both privately-owned companies incorporated in Canada. To Canada’s knowledge, both companies are Canadian-owned. Western Star Trucks Inc. is a company incorporated in Canada. It is wholly-owned by a Canadian-incorporated company, Western Star Trucks Holdings Ltd., which in turn is controlled by a Singapore-incorporated company, Western Star International, which owns 42 per cent of Western Star Holdings. Canada notes that Japan has not adduced any evidence in the record to support its assertion that the three companies at issue are “suppliers of wholesale trade services”. As Canada noted in its Response of 25 June 1999 to the Panel’s Question 35, wholesalers purchase goods and resell them to retailers. A headnote to Division 6 of the CPC states that: “the principal services rendered by wholesalers and retailers may be characterized as reselling merchandise…” Manufacturers that import vehicles but do not resell them to retailers are not “suppliers of wholesale trade services”. Eligible manufacturers that do import buses or SCVs are not necessarily “wholesale trade service suppliers”. For example, they may import bus or SCV chassis (which are considered to be vehicles under the MVTO and the SROs) as inputs for finished vehicles of their own manufacture; they may re-import vehicles of their own manufacture that have been exported for modification in other countries; or they may import vehicles as retailers (i.e. for direct sale to end-users). None of these activities would constitute the supply of wholesale trade services. In its Response of 25 June 1999 to Japan’s Question 2(4), Canada stated only that the three companies in question, among others, “have imported vehicles other than automobiles under the MVTO or an SRO at least once in the last 10 years”. At paragraph 131 of its Second Written Submission of 2 July 1999, Japan subsequently declared all of these companies to be “wholesale trade service suppliers”. It has offered no evidence to substantiate this assertion. Questions and replies relating to third-party argumentsQuestion 1 from the European Communities to the United States (the measures at issue and GATS Article V)The United States have suggested that even if the measure in dispute were found to be inconsistent with GATS Article II, they would nevertheless be covered by the exception conferred by GATS Article V:1. That position appears to be based on a misunderstanding of the nature of the measures in dispute. Those measures are not part of, nor required by NAFTA. Some of the measures implement the provisions of the 1965 Auto Pact between the USA and Canada (namely, the tariff exemption for importing vehicles from the United States granted to a number of manufacturers already established in Canada in 1956 under the MVTO 1998). The remaining measures are purely unilateral ones, not required either by NAFTA or by the Auto Pact (namely, the tariff exemption granted to the same manufacturers under the MVTO 1998 for importing vehicles from third countries, including Mexico, as well as the so‑called Special Remission Orders issued to manufacturers not established in Canada in 1965). (a) Is it the view of the United States that the Auto Pact qualifies as an agreement of the type mentioned in Article V:1 of GATS? (b) Does the United States take the view that Article V:1 of GATS provides an exception also with respect to the adoption of purely unilateral measures that are not part of, nor required by an agreement of the type mentioned in that provision? Reply from the United States(a) No. (b) Article V:1 may apply to such measures in some cases depending, inter alia, on their nature. Question 2 from the European Communities to the United States (the measures at issue and GATS Article V)It is generally admitted that Panels cannot take into account affirmative defenses unless invoked by one of the main parties to a dispute. (a) Does the United States take the view that the panel could reject a claim on the basis of Article V:1 GATS, even if that provision was not invoked by Canada? (b) Who bears the burden of proving that an agreement fulfils the conditions of Article V:1? Reply from the United StatesThe United States agrees with the European Communities that a panel cannot take into account affirmative defenses unless such defenses are invoked by one of the parties to the dispute. The panel in United States – Customs User Fee arrived at a similar conclusion, noting "GATT practice has been for panels to make findings only on those issues raised by the parties to the dispute."782 This practice is reflected in Article 7.2 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes. Question 3 from the European Communities to the United States (the measures at issue and GATT Article XXIV)The United States has indicated that even if the measures in dispute were found to be inconsistent with GATT Article I in that de facto they provide more favourable treatment to goods originating in Mexico and the USA, such violation would nevertheless be covered by GATT Article XXIV. Yet in 1996 the United States requested a renewal of the 1965 waiver for the Auto Pact, notwithstanding the fact that in the meantime the United States had concluded the CUSFTA and the NAFTA with Canada, both of which purport to establish a free-trade area. Why did the United States consider it necessary to make such a request? Reply from the United StatesIn view of the fact the European Communities has noted that "[t]he Auto Pact is an asymmetrical agreement that imposes different obligations on each of the two signatories, the US waiver does not appear to be relevant in a case involving Canadian measures. Question 4 from the European Communities to the United States (the measures at issue and GATT Article XXIV and GATS Article V)Do Article XXIV GATT and Article V:1 GATS provide an exception only with respect to the claims submitted by the EC under GATT Article I and GATS Article II respectively, or also with respect to all the other claims submitted by the EC under the GATT, the TRIMs Agreement, the SCM Agreement and the GATS? Reply from the United StatesAs a third party in these proceedings the United States limited its presentation to a few points that may be of relevance to the Panel in examining this dispute. The questions raised by the European Communities in question 4 range beyond the scope of the US presentation, and the United States is not prepared to provide views on these matters at this time. Question 5 from the European Communities to the United States (freezing of SRO list of beneficiaries)The EC has alleged, and Canada has not disputed, that Article 1200.1 of the CUSFTA, which "froze" the list of beneficiaries of the Auto Pact and of the Special Remission Orders as of 1989, was inserted at the request of the United States. (a) Why did the United States demand the inclusion of that provision? (b) How did Article 1200.1 of the CUSFTA contribute to the liberalisation of trade in motor vehicles and distribution services for automobiles between the United States and Canada, as compared to the pre‑existing situation? Reply from the United StatesFor purposes of clarification, the United States notes that the European Communities appears to have erroneously cited to Article 1200.1 of the US‑Canada Free‑Trade Agreement; the United States believes the relevant provision is Annex 1002.1 of that agreement. As a third party in these proceedings the United States limited its presentation to a few points that may be of relevance to the panel in examining this dispute. The questions raised by the European Communities in question 5 range beyond the scope of the US presentation, and the United States is not prepared to provide views on these matters at this time. Directory: english -> tratop e -> dispu e dispu e -> Annex g list of exhibits submitted by the parties dispu e -> World Trade Organization dispu e -> World Trade Organization Download 2.77 Mb. Share with your friends: |