LEARN

EDUCATION

Canada- Certain Measures

Concerning Periodicals
Fall 2021, Trade law and Policy in Practice

Prof. Shadikhodjaev, Sherzod

Group Presentation
 Khidirov,
Kaldybaev, Fitrian, Jafar Khin Thida
Kairat Archita Nur Jabborovich

Group Introduction

Kioko, Emily Dang, Thi Kibalama, Lamichhane,

Kalekye Kim Dung Tonny Parbati
Table of content
01 INTRODUCTION

02 MEASURES IN THIS DISPUTE

03 INTERIM REVIEW

04 PANEL ROUND

05 APPELLATE BODY ROUND

06 SUMMARIZATION
 Introduction
Short Title Canada- Periodicals

Complainant United States

Respondent Canada
Agreement Cited: (as cited in request for Article III, XI GATT, 1994
consultation)
Agreements Cited: (as cited in panel request) Article III, XI GATT, 1994

Consultation requested 11th March, 1996

Panel Requested 24th May 1996
Panel Established 19th June 1996
Panel Report Circulated 14th March 1997 (Adopted on 30th July
1997)
 This Panel concerns three Canadian
measures:
Product at Issue: Periodicals*

Tariff Code 9958 which prohibits the importation into

Canada of certain periodicals

Measures which imposes an excise tax on

Excise Tax Act
certain "split-run" periodicals;

the application of certain postal rates to certain

Canadian periodicals including through actions of
The postal rate system
Canada Post Corporation and the Department of
Canadian Heritage

*publications that are published at regular intervals. Daily newspapers, weekly magazines, and quarterly journals are all periodicals etc.,
 Tariff Code 9958 - Import Prohibition
The Canadian Government enacted Tariff Code 9958, in Schedule VII of the Customs tariff:

It is put into effect by Article 114 of the Customs Tariff of the country
1 which provides that "the importation into Canada of any goods
enumerated or referred to in Schedule VII is prohibited.

Prohibited the importation of certain periodicals into Canada - is a special

2 edition, including a split-run or regional edition, that contains an advertisement
that is primarily directed to a market in Canada.

Periodicals imported into Canada is an edition in which more than five percent of the
3 advertising content consists of advertisements directed to the Canadian market.
Excise Tax Act

• 15/12/1995 Canada enacted Part V.1 of the Excise Tax

• The amendment imposes an excise tax on certain “split-run” periodicals
• 80% on the value of all advertisements in split-run edition (per issue basis)
• Split-run edition defined as periodicals
• Distributed in Canada, more than 20% of editorial is the same, and advertisement
not identical in all excluded edition
• Excludes editions primary circulated outside Canada 
• Grandfather treatment available to Canadian split-run editions prior to 26th
March 1993
Funded and Commercial Postal
Rates
Canada Post Corporation (CPC) established as Crown Corporation (controlled by
government and accountable to government)

Funded publications
01 rates

CPC
divided
02 Commercial Canadian
rates

publication
Commercial
into: 03 international
publications rates
 Result of the Interim Review
The US suggested to Panel that The US commented that the interim
split-run and non-split-run report failed to mention certain
periodicals shouldn’t be additional discount options that only
differentiated. Refused by the available for Canadian periodicals.
panel The Panel accepted this comment

Imported “split-run” Commercial Canadian

Tariff Code 9958 & domestic non The taxation
& international rates
”split-run”

The US argued that Canada

Panel consider a special edition,
imposed direct taxation
including a split-run as the
because the excise tax was
principal issue.
focused on particular type
of good. Panel rejected the
argument.
 Result of the Interim Review (2)
Canada Post is an entity of the
Canadian Government?
The US considered that Canada Post is an entity of
the Canadian Government and find a violation of
Article III:4 of GATT 1994. Panel considered such a
change unnecessary.
The examination of Article III:1 of
GATT 1994 was unnecessary
The US suggested that the examination of
Article III:1 of GATT 1994 (internal
measures should not be applied to afford
protection to domestic production) was
unnecessary in this case. Panel decided to
retain these paragraph.
The United States
questioned the Panel
conclusion
The US questioned the Panel
conclusion that the "funded" rate
scheme constituted a payment of
subsidies permitted by Article III:8 of
GATT 1994 (payment of subsidies
exclusively to domestic producers)
Tariff Code Prohibits the Importation into Canada: Issues of
9958: special edition: contained advertisement

Canada’s Assertion Panel

1 Argument
Justified under Article XX(d) of GATT 1994
 “the protection of patents, trademarks and
copyrights, and the prevention of deceptive
practices; ...".
A measure to secure the attainment of the objectives of Section
19 of the Income Tax Act, which allows for the deduction of
expenses for advertising directed to the Canadian market
2
Inconsistent with article XI:1 of GATT 1994 and cannot be
justified under XX(d)
 Article XI: 1 No prohibitions other than duties, taxes or
charges…Shall be instituted by any Member on the
importation of any product of the territory of any other
member
The Panel concluded that the Import Ban did not "secure compliance" with
Section 19 of the Income Tax Act
The Excise Tax Act
Canada’sAssertion The USArgument
 Canada claims that
Article III of GATT 1994
does not apply to Part
V.1 of the Excise Tax Act
because advertising
services is within the
purview of the General
Agreement on Trade in
Services ("GATS")
 Overlap between the
non-commitment in
services (GATS) and the
obligations or
commitments in the
goods sector (GATT)
PanelArgument
 Overlaps between the
subject matter of disciplines
The United States claims that
Part V.1 of the Excise Tax Act in GATT 1994 and in GATS
is inconsistent with Article are inevitable
III:2 of GATT 1994, or in the
 Advertising services have
alternative, is inconsistent
with Article III:4 long been associated with
the disciplines under GATT
Article III
 Article III of GATT 1994 is
applicable to Part V.1 of the
Excise Tax Act.
 GATT Article III:2 (Excise Tax Act)
"1. The [Members] recognize that internal taxes and other internal charges, and laws,
regulations and requirements affecting the internal sale, offering for sale, purchase,
transportation, distribution or use of products, and internal quantitative regulations requiring the
mixture, processing or use of products in specified amounts or proportions, should not be
applied to imported or domestic products so as to afford protection to domestic production.

"2. The products of the territory of any [Member] imported into the territory of any other
[Member] shall not be subject, directly or indirectly, to internal taxes or other internal charges of
any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover,
no [Member] shall otherwise apply internal taxes or other internal charges to imported or
domestic products in a manner contrary to the principles set forth in paragraph 1".

Two questions to know if there is a violation of GATT rules

(a) Are imported "split-run" periodicals and domestic non "split-run" periodicals like
products?;

(b) Are imported "split-run" periodicals subject to an internal tax in excess of that applied
to domestic non "split-run" periodicals?
 GATT Article III:4 (Postal rates)

"4. The products of the territory of any [Member] imported into the territory of any other
[Member] shall be accorded treatment no less favorable than that accorded to like products of
national origin in respect of all laws, regulations and requirements affecting their internal sale,
offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph
shall not prevent the application of differential internal transportation charges which are based
exclusively on the economic operation of the means of transport and not on the nationality of the
product".

Two questions to know if there is a violation of GATT rules

(a) whether the fact that Canada Post applies the "commercial Canadian" rates or the
"funded" rates to Canadian periodicals, which are lower than the "international" rates
applied to imported periodicals, constitute a violation of Article III:4;
(b) whether the "funded" rate scheme for certain periodicals is allowed as a subsidy within
the meaning of Article III:8
 GATT Article III:8(b) ("funded" rate scheme)

"(b) The provisions of this Article shall not prevent the payment of subsidies exclusively to
domestic producers, including payments to domestic producers derived from the proceeds of
internal taxes or charges applied consistently with the provisions of this Article and subsidies
effected through governmental purchases of domestic products".

Having found that the "funded" rate scheme violates Article III:4 of GATT 1994, we next
examine whether this scheme is justified under Article III:8(b) of GATT 1994, as argued
by Canada
 PANEL CONCLUSION

 Tariff Code 9958 is inconsistent with Article XI:1 of GATT 1994

and cannot be justified under Article XX(d) of GATT 1994;

 Part V.1 of the Excise Tax Act is inconsistent with Article III:2,
first sentence, of GATT 1994;

 The application by Canada Post of lower "commercial

Canadian" postal rates to domestically-produced periodicals than
to imported periodicals, including additional discount options
available only to domestic periodicals, is inconsistent with
Article III:4 of GATT 1994;

 but the maintenance of the "funded" rate scheme is justified

under Article III:8(b) of GATT 1994.
 Appellate Body round
Canada
US filed an Oral hearing
filed the
appellant’s
Notice of
submission
Appeal
with the
Appellate
12 May 1997 26 May 1997

29 April 1997
14 May 1997 2 June 1997

Canada filed Canada and

an US filed an
appellant’s appellee’s
submission submission
3 Issues in Canada and 1 Issues in US raised in this appeal

01 Article III:2 of the GATT 1994

or GATS Canada

whether imported split-run

Canada
periodicals and domestic non-
split-run periodicals are "like
products"
02
necessary to demonstrate that

03 Part V.1 of the Excise Tax Act

discriminates against imported
products
Canada

"a payment of subsidies

US exclusively to domestic
producers" 04
 First issue: Application of GATT 1994
Canada
Argument

Part V1 of the excise tax In respect of the provision of advertising sevices

measure affecting advertising servises, 01 did not undertaken any commitments 03
not measure affectring trade in goods

Canada Taxation of magazine advertising

02 under the scope of GATS, not under
Article III : 2 of GATT
04 services
not indirect taxation

Cannot apply GATT 1994 to Part V.1 of the Excise Tax Act
 First issue: Application of GATT 1994
US Argument

Part V1 of the excise tax Tax

measure affecting imported products in the 01 assessed on a “per issues” basis 03
form of a tax applied to advertising services,

falls within Article III:2, first sentence Title of Part V1 of the excise tax Act
02 of the GATT 1994 04 “Tax on Split-run periodicals”

Agree with the Panel conclusion of applying GATT 1994 to this measure
 First issue: Application of GATT 1994

01 02 03 04 05

Title of Part V.1 of the A periodical is a good Part V.1 of the Excise Tax Tax is a tax on a Obligation under GATT
Excise Tax Act comprised of 2 components Act is a companion to periodical, on a “per 1994 and GATS can co-
Tariff Code 9958 issue” basis exist
“TAX ON SPLIT-RUN
combine to form a Canada agrees that
PERIODICALS”, not “tax Payer of the tax _ not one does not override
physical product Tariff Code 9958 _
on advertising” the advertiser the other
measure affecting trade
in goods

AB: Part V.1 of the Excise Tax Act, is a measure which clearly applies to goods and
Article III:2 of the GATT 1994 is applied to deal with this appeal
 SECOND ISSUE: LIKE
PRODUCTS
THIRD ISSUE: IN EXCESS OF
Are imported “split-runs” Are Imported “split-runs “ periodicals
periodicals and domestic non subject to an internal tax in excess
“split- run” preriodicals like 01 of that applied to domestic non split- 02
products run periodicals?

There is a violation of Article

III:2, first sentence
 SECOND ISSUE: LIKE PRODUCTS
THIRD ISSUE: IN EXCESS OF
Panel erred in law in finding that
1 Imported Split Runs and Non spilt runs
are like products

Failed to apply the principle of Non

2 discrimination

Failed to Compare an imported

Step 3 product with domestic products

Canadas Argument In Excess Of

Step 4 Non split up Periodicals Are Like
products Part VI if the ETA does
not discriminate against
Part V.I of the Excise Tax Act is consistent with Article the imported product's
article III:2, First Sentence of the GATT 1994
 SECOND ISSUE: LIKE PRODUCTS
THIRD ISSUE: IN EXCESS OF
Split Runs Periodicals are “like”
1 domestic non-split up run periodicals
spilt runs

The panel correctly determined its

2 application of the tax returned
factors

Imported split-runs periodicals and

Step 3 Domestic non Split -run periodicals
could be practically identical
U.S.A. Argument products

Step 4 In Excess Of
Canadas 80 percent excise tax
USA requests the AB to affirm the panels conclusion that Part alters the competitive
environment against imported –
V.I of the Excise tax is inconsistent with the Article III:2, first spilt run Magazines thus favours
sentence of the GATT 1994 Like products
The Appellate Body Findings and
Arguments

there were no The Panel did

The Panel based They Concluded
imports of split- not base its
its on a single that the periodicals
findings on the
run editions of hypothetical can be like products
exhibits and
periodicals Example . within the meaning
evidence before
because of the it of Article III:2 of
Tariff Code 9958, GATT 1994
The Appellate Body Findings and
Arguments

The AB concluded that The determination of whether the

periodicals are Like products is a
lack of proper legal process by which legal rules have to
reasoning, The Panel be applied to facts .
Panel had sufficient could not arrive to a
grounds to find the two
conclusion that the
products at issue are
“Like Products” from periodicals are like
an examination of an products
incorrect example
Article III:2 in the
First sentence is The appellate body reversed
delicate since the legal findings and
“Likeness”must
conclusions of the panel on
be construed
Article III:2 of the Gatt 1994
Narrowly and on Appellate body
a case –by case-
Basis Decision

the Body needed to

examine the
consistency of the
measure with the
Second Sentence of
Article III:2 of the
Gatt 1994
 Application of Article III:2, second sentence

Canada United States

US failed to raised the Panel’s finding on
this article
The second sentence of Article
III:2 is not an approriate subject
for the appellate review
The Panel had resolved the issue by
finding a violation of Article III:2, first
sentence
No ground for US to claim
Application of Article III:2, second sentence

Appellate Body’s findings

- Reverse the finding of Panel on the issue of “Like products”

- Second sentence and first sentence are close related

- There is sufficient basis in the Panel

Appelate Body can and should examine the consistency
of the measure with the second sentence of Article III:2
 Continue with Article III:2, second sentence
The imported products and the domestic products are
01 "directly competitive or substitutable products" which
are in competition with each other?

The directly competitive or substitutable imported and

02 domestic products are "not similarly taxed”?; and

The dissimilar taxation of the directly competitive or

substitutable imported domestic products is "applied... so as
03 to afford protection to domestic production?
 Directly competitive or substitute products
Canada United States

1. They compete for advertising revenue,

1. They serve different end-uses
they compete for the same readers
2. The market share of imported and
2. Task Force Report, the Minister of
domestic magazines in Canadian market
Canadian Heritage and Canadian officials
are constant
have acknowledged of the substitutability
of imported split-run and domestic non-
split-run periodicals in the Canadian market.
Not directly competitive or
substitute products directly competitive or substitute
products
Directly competitive or substitute products
• Appellate Body’s findings

• Panel “Canadian English-language publications face tough competition on newsstands;…..

foreign magazines dominate the Canadian market

• In Task Force Report “[Canadian publisher] English language consumer magazines face
significant competition for sales from imported consumer magazines because they are a close
substitute”. “There is considerable price competition”

• Minister of Canadian Heritage : Canadian are much more interested in American daily life……we
must protect ourselves against split-run coming from foreign countries and, in particular, from
United States.
Directly competitive or substitute products
• Appellate Body’s findings

• The argument of market share of Canada would have weight only if Canada had not
protected the domestic market of Canadian periodicals through other measures

• Newsmagazines, like TIME, TIME Canada and Maclean’s, are directly competitve or
substitutable in spite of the “Canadian” content of Maclean’s

Imported split-run periodicals and domestic non-split-run periodicals

are directly competitive or substitutable products
 “Not similarly taxed”
• Appellate Body’s findings

• Part V.1 of the Excise Tax Act taxes only split-run editions of periodicals, not
domestic non-split-run periodicals

• The amount of the taxation - 80% of the value of all advertisement- is far
above the de minimis threshold

• The magnitude of this tax is sufficient to prevent the production and sale of
split-run periodicals in Canada.
They are not similarly taxed
 “So as to afford protection”
• Appellate Body’s findings

The magnitude of the dissimilar taxation is beyond excessive, indeed, it is prohibitive.

Government of Canada’s policy objectives for the Canadian periodical industry: “The
Government reaffirms its commitment to protect the economic foundations of the Canadian
periodical industry…”

Canada also admitted that the objective and structure of the tax is to insulate Canadian
magazines from competition in the advertising sector…

The design and structure of Part V.1 of the Excise Tax Act is clearly
to afford protection to the production of Canadian periodicals
There is a violation of Article III:2,
second sentence of the GATT 1994
 ISSUE 4: FUNDED & COMMERCIAL POSTAL RATES
• Rationale for the decision

• Following the two-step test laid down by panel in Japan-Trade in

Semiconductors, the panel in this case was able to establish that although Canada
Post has a separate legal personality from the government, it operates under
governmental instructions and the rates charged was dependent on government
intervention.

• United states failed to submit evidence that economic benefits were retained by
Canada Post in order for the principle laid down in Oilseeds case to be applicable.
Also the argument of USA is inconsistent with the earlier argument that Canada
Post is a government agency going by which the transfer of funds from Canada
Heritage to Canada Post is merely internal transfer of funds and payment is made
directly to Canadian Publishers.
 Appellate body finding

• Part of this issue challenged at the appellate body was panel decision that funded
rate is justified under Article III: 8(b).

• Article III: 8(b) only intended to exempt the payment of subsidies that involve
expenditure of revenue by a government from the obligations Article III. Panel
wrongly interpreted the provision

• The transfer of funds was from one government entity to another and not from
government to domestic producers as required by Article III:8(b).

 Funded rate was not justified under Article III:8(b).

 Panel’s decision on this issue was reversed.
 Appellate Body Findings

2.

Part V.1 of the Excise Tax Act

Article III:2, Second sentence,
1. “directly competitive or
1. substitutable”
Part V.1 of the Excise Tax Act 2. Not similarly taxex
3. So as to afford protection
Article III:2, first sentence,

not Like Product 3.

funded postal rates scheme

not justified by Article III:8

(b) of the GATT 1994.
 AB Recommendation

Canada to bring the measures found

the Panel and Appellate Body Report.
 SUMMARIZATION
Canada- Periodicals
Complainant United States

Respondent Canada

Product at issue Imported periodicals (from the United States) and domestic periodicals.

Tariff Code 9958 Prohibition of importation of certain periodicals into Canada- Inconsistent
with Article XI:1 of GATT 1994

Part V.1 of the Excise Canada charges internal tax 80% on the value of all advertising revenue
Tax Act on imported split-run periodicals but not on “directly competitive or
substitute” domestic non split-run periodicals - Inconsistent with Article
III:2, second sentence
Postal rate system Canada Post charges domestic periodicals lower postal rates than
imported periodicals – Violation of Article III:4 of GATT 1994