1. Australia appreciates the opportunity to present its views in
this dispute on Canadian measures relating to exports of wheat and treatment
of imported grain.
2. In this submission Australia intends to address only those issues
that are relevant to the content and scope of Article XVII of the General
Agreement on Tariffs and Trade 1994 (GATT 1994) concerning State Trading
Enterprises (STEs), in particular:
3. Australia notes, as accepted by both Parties and recognised by
previous Panels, that the creation of STEs (both state enterprises and enterprises
granted exclusive or special privileges by Members) including those exercising
monopoly rights, is entirely consistent with GATT 1994. With regard
to STEs, the issue before the Panel in this dispute is therefore when the
activities of a particular STE may become inconsistent with the general
principles of non-discriminatory treatment prescribed by GATT 1994, such
that the WTO Member creating that STE is in breach of its obligations under
4. Also uncontested is that the purpose of Article XVII is to ensure
that WTO Members do not through an STE circumvent their obligations with
respect to non-discriminatory treatment. Australia submits that this
objective - that STE creation does not confer any advantage on a Member
- must necessarily be balanced by recognition that a Member choosing to
create an STE to undertake certain activities should not be placed in a
worse position than a Member whose private traders carry out the same activities,
just as STEs themselves should not be placed in a worse trading position
than such private traders.
5. In this context, Australia submits that the standard to be applied
to the acts of STEs must complement, and be consistent with, standards applied
under GATT disciplines reviewing governmental measures affecting imports
and exports of private traders. A different standard is neither required
by, nor consistent with, the text or the objective of Article XVII.
6. Australia also submits that Article XVII obligations should not
be considered to provide an avenue for contesting governmental measures
that are otherwise permitted by, or not inconsistent with, particular disciplines
of GATT 1994. Article XVII should also not be used to attempt to address
situations more appropriately remedied by particular applicable GATT 1994
or other WTO disciplines.
7. Finally, Australia also notes that this is the first dispute in
which the application of Article XVII to an exporting STE, and in particular
one exercising export monopoly rights, is at issue. Previous Panels
addressing Article XVII and STEs have addressed importing STEs and the non-discriminatory
principles applicable to purchases and sales involving imports, and their
opinions must be considered in that context.
II. Article XVII of GATT 1994
A. STEs Are Not Inconsistent With GATT 1994
8. As acknowledged by both Parties to this dispute, the creation
of STEs to undertake purchases or sales involving imports or exports, is
entirely consistent with GATT 1994.
9. Moreover, it is also clear from the text of GATT 1994 and the
conclusions of prior Panels dealing with (import) monopolies that the creation
of STEs exercising monopoly rights and their behaviour as monopolies per
se, is also not inconsistent with Members' obligations under GATT 1994
in general or Article XVII of GATT 1994 in particular.
10. As the 1989 Panel Report in Republic of Korea - Restrictions
on Imports of Beef - Complaint by the United Statesconcluded:
the rules of the General Agreement did not concern the organization or
management of import monopolies but only their operations and effect on
trade,...the existence of a producer-controlled monopoly could not in
itself be in violation of the General Agreement.
11. That such STEs are not in themselves inconsistent with the GATT
1994 has been and should continue to be a fundamental consideration for
any Panel in interpretation and application of Article XVII. For example,
in considering which “principles of non-discriminatory treatment”
are appropriate, the Panel should ensure that the application and/or interpretation
of such principles does not negate or undermine the permitted right of Members
to create exporting STEs, including those exercising export monopoly rights.
B. The Nature and Scope of Article XVII:1(a)
12. Article XVII:1(a) of GATT 1994 essentially serves to ensure that
WTO Members do not, through an STE, circumvent their GATT obligations with
respect to non-discriminatory treatment. In practice, it essentially
requires of Members, as regards their STEs, the same general standard regarding
consistency with the general principles of non-discriminatory treatment
of GATT 1994 as such Members have undertaken regarding their measures affecting
private import and export trade.
13. This is clear from the text of Article XVII:1(a) itself (emphasis
Each [Member] undertakes that if it establishes or maintains a State enterprise,
wherever located, or grants to any enterprise, formally or in effect, exclusive
or special privileges, such enterprise shall, in its purchases or sales
involving either imports or exports, act in a manner consistent with
the general principles of non-discriminatory treatment prescribed in this
Agreement for governmental measures affecting imports or exports by private
14. However it is equally clear that the obligation set out in Article
XVII:1(a) is relevant to only a particular set of activities by STEs - that
is 'purchases or sales involving either imports or exports'.
Article XVII:1(a) does not extend this undertaking of consistency to all
trade-related activities or to the general behaviour of importing or exporting
15. Australia also notes that Article XVII:1(a) contains only a general
obligation in the form of an undertaking that STEs shall act consistently
with the principles of non-discriminatory treatment of GATT 1994.
It does not contain additional obligations which specify, proscribe or direct
how a Member must give effect to its undertaking. Any Member is free
to choose the approach it takes to fulfil this obligation. It may
choose direct oversight or supervision of its STE or create legislative,
regulatory reporting and monitoring structures, or it may not. It
is under no obligation under Article XVII to choose any particular course
of action. Similarly, there is no inference
that any means of implementation is better than another, or that its presence
or absence is more or less indicative of GATT consistency, just as there
is no inference that any particular type of exclusive or special privilege
granted to an STE is inconsistent with GATT 1994 per se.
C. Defining the standards applicable to STE behaviour
16. The fundamental primacy of the non-discriminatory treatment principles
of the GATT 1994 in defining the standard against which STE behaviour (in
purchases or sales involving imports or exports) is to be measured is clearly
evident from the text of Article XVII:1(a). This has been confirmed
in the approach that previous Panels have taken to the relationship of Article
XVII with the rest of GATT 1994. The Panels in Canada - FIRA,
Canada, Import, Distribution and Sale of Alcoholic Drinks by Canadian
Provincial Marketing Agencies  and Korea - Measures Affecting Imports of Fresh, Chilled or Frozen
Beef (Korea Beef) all essentially found, as the Korea Beef
Panel put it:
(a) conclusion that the principle of non-discrimination was violated would
suffice to prove a violation of Article XVII'.
17. Subparagraph XVII:1(b) states that:
The provisions of subparagraph (a) of this paragraph shall be understood
to require that such enterprises shall, having due regard to the other provisions
of this Agreement, make any such purchases or sales solely in accordance
with commercial considerations, including price, quality, availability,
marketability, transportation and other conditions of purchase or sale,
and shall afford the enterprises of other [Members] adequate opportunity,
in accordance with customary business practice, to compete for participation
in such purchases or sales.'
18. From the text of Article XVII:1, it is clear that the role of
subparagraph 1(b) is to provide better identification, interpretation and
application of the obligation and standard set out in subparagraph 1(a).
This is unambiguously articulated in the wording of the first phrase of
subparagraph 1(b) itself -“(t)he provisions of sub-paragraph (a)
of this paragraph shall be understood to require… having due
regard to the other provisions of the GATT…”.
19. The Panels in the Canada FIRA
case and the Korea Beef case both concluded (as stated by the Korea
Beef Panel), that “(t)he GATT jurisprudence has also made clear
that the scope of paragraph XVII:1(b), which refers to commercial considerations,
defines the obligations set out in paragraph 1(a)”.
20. In this regard, the Korea Beef Panel's additional statement
similarly, a conclusion that a decision to purchase or buy was not based
upon commercial considerations would also suffice to show a violation
of Article XVII
is not suggesting that Article XVII:1(b) creates an entirely separate obligation
on Members concerning the standard of behaviour of their STEs. It
would be inconsistent with the rest of that Panel's analysis and conclusions
on this matter for it to be suggested that the Korea Beef Panel is
asserting that the elements of subparagraph (b) are to be considered and
interpreted in isolation from subparagraph 1(a). Rather, in that dispute,
the reasoning of the Panel suggested that a decision to purchase or buy
not based on commercial consideration shows - or demonstrates - that a violation
of Article XVII:1(a) has occurred.
21. Australia therefore submits it is clear that “the general
principles of non-discriminatory treatment prescribed in the GATT”
of subparagraph 1(a) is the standard against which the behaviour of STEs
is to be assessed. The definitional elements and illustrative variables
of subparagraph 1(b) assist in this process.
22. The primary objective of Article XVII:1(c) is to require a certain
standard of behaviour of the Member government - that is, of not preventing
its enterprises (STE and private alike) from acting consistently with the
general principles of non-discriminatory treatment of GATT 1994. This
obligation runs parallel to, and complements, a Member's other undertakings
under Article XVII and under GATT 1994 itself.
23. As with the obligation enunciated in XVII:1(a), similarly XVII:1(c)
is silent as to how and to what degree a Member is to act so as to 'not
prevent' consistency. This remains the choice of the Member concerned.
Similarly, Australia submits that this obligation to refrain cannot be read
to imply a more direct obligation on a Member to actively ensure any form
of behaviour by its enterprises.
24. Subparagraph 1(c) also envisages that subparagraphs (a) and (b)
are to be read together in enunciating the obligation contained in subparagraph
1(c). Following this reasoning, when examining the scope of subparagraph
1(c), the Panel in Canada FIRA concluded that “subparagraph
1(b) does not establish a separate general obligation to allow enterprises
to act in accordance with commercial considerations” .
D. The Need for a Case by Case Approach to the Interpretation
and Application of the Standard
25. Any application of the elements of Article XVII must necessarily
be undertaken on a case-by-case basis. What is an appropriate application
to the particular enterprise in question of the general principles of non-discriminatory
treatment prescribed in GATT 1994, including which principles are of relevance
to the particular acts complained of in the instant case, must be considered.
26. It should also be noted that, when elements of subparagraph (b)
are applied, the language of the subparagraph itself requires a case by
case approach. For example, in considering the meaning of 'solely
in accordance with commercial considerations' it is clear that the additional
variables listed ('including price, quality, availability, marketability,
transportation and other conditions of purchase or sale') are not intended
to be exclusive or exhaustive.
27. Additionally, what is a relevant commercial consideration and
what would be indicative evidence that an STE is or is not acting solely
in accordance with such considerations will vary from enterprise to enterprise
and from industry sector to industry sector. Relevant factual considerations
may include the particular privileges granted to the STE and the regulatory
environment under which it operates.
28. Also relevant is what is usual or customary commercial business
practice in the market, including that of private traders, and the nature
and conditions of the international market. For example, market segregation
for the purposes of marketing and pricing is a common private sector business
practice, considered to be in accordance with commercial considerations.
Like private traders, export STEs can and do differentiate between markets
as a result of supply and demand conditions. That this is considered
permissible behaviour for an STE is expressly recognised in the interpretive
Ad Note to this Article.
Similarly pooling arrangements are a normal commercial risk management and
marketing tool used in agricultural production and trade by agricultural
and other co-operatives and also are used in other industry sectors, such
29. Article XVII must not be interpreted in such a way as to be held
to require a different standard for regulation of STE behaviour by Members
as distinct from their regulation of private traders involved in the same
activities. This would in effect undermine the legitimacy of the existence
of such enterprises under GATT 1994. Any standard/s applied to purchases
and sales involving either imports or exports by STEs must complement and
be consistent with those applied to governmental measures affecting private
30. State Trading Enterprises, including those exercising monopoly
rights for purchases or sales involving imports or exports, are permissible
under, and are not inconsistent with, GATT 1994.
31. The obligation undertaken by a Member under Article XVII:1(a)
concerning the conduct of its STEs is a general obligation to achieve a
result, and does not encompass any specific obligations concerning how that
result is to be achieved. The obligation under Article XVII:1(a) also
only extends to the behaviour of its STEs in making purchases or sales involving
imports and exports and not to other behaviour of that STE.
32. In regard to assessing whether a member has met its obligation
under Article XVII:1, the behaviour or action of the STE at issue will need
to be considered against the standard provided for in Article XVII:1(a),
as assisted by the additional definitions provided in subparagraph 1(b).
The unambiguous wording of Article XVII:1(a), and the weight of opinion
in previous Panels indicates that the applicable standard is that of consistency
of the behaviour or action with the general principles of non-discriminatory
treatment prescribed in GATT 1994. What the applicable general principles
are will depend on the facts of each case and the behaviour complained of
regarding a STE's purchases or sales, and possibly also whether the purchase
or sale involves imports or exports.
33. Similarly, in reviewing the further elements of interpretation
in subparagraph 1(b) including 'commercial considerations', such requirements
must be considered on a case by case basis, having regard to the particular
factual situation of each dispute.
34. Article XVII must not be interpreted in such a way as to require
a different level of obligation to be applied to Members with regard to
their non-discriminatory treatment undertakings concerning their STEs as
compared to their measures affecting imports or exports by private traders.
Similarly, it must not be interpreted so as to prohibit activities that
are permitted, or not prohibited, elsewhere in the WTO Agreement.