States contended that as a consequence of the CWB’s monopoly on certain grain sales, the CWB engages in unfair price discrimination, and that the CWB itself receives direct and indirect government subsidies. Specifically, the US government raised the following arguments:
The CWB practices “discriminatory” trade policies that violate Canada’s GATT obligations under Article 17. 60
US wheat exports into Canada receive less favorable treatment than like Canadian grain.
Canada’s limits on the revenue that railroads can receive on the ship- ment of domestic grain constitute a violation of Canada’s GATT Arti- cle 3 obligations.
In August 2004, the WTO Appellate Body ruled against US claims that the Canadian government violated WTO rules by allowing the CWB to sell wheat on noncommercial terms.63 While the Appellate Body’s final report undermines US efforts to overhaul CWB operations, Canada still faces significant transition problems as ongoing WTO nego-
60. The US government alleges that the CWB is given exclusive rights that conflict with Canada’s obligations under GATT Article 17. Article 17, paragraph 1(b) requires state trad- ing enterprises to make sales “solely in accordance with commercial considerations” and to give other WTO members opportunities to compete for such sales. According to the United States, some privileges given by the Canadian government to the CWB include exclusive right to sell western Canadian wheat, government guarantees of the CWB’s financial oper- ations, and rights to purchase and export Canadian wheat at prices determined by both the Canadian government and the CWB. For complete details, see “Request for the Establish- ment of a Panel by the United States,” www.wto.org/english/tratop_e/ dispu_e/dispu_e. htm (accessed in April 2003).
61. Under the Canada Grain Act (1970), imported grain must be segregated from domestic Canadian grain throughout the handling system. Even though Canadian elevators are man- dated under the joint Wheat Access Facilitation Program (WAFP) to facilitate US wheat ex- ports, US wheat cannot be stored in the same grain elevators. The United States argues that such handling restrictions act as a de facto ban on US wheat exports into Canada through Canadian grain elevators. In response, Canada argues that phytosanitary and varietal regis- tration measures are designed to guarantee the purity of wheat varieties.
62. The United States assumes that removing existing caps on railway freight rates for transporting domestic grain would give US wheat producers better access to the Canadian market.
63. According to the US government, the CWB does not function as a commercial actor be- cause it uses monopoly privileges to undercut prices and gain market share in wheat. While the WTO ruled against US claims that the CWB used “special privileges” to make sales on a noncommercial basis, the WTO did support some US claims. Specifically, the WTO deter- mined that the Canadian grain distribution system and “rail revenue cap” were inconsistent with national treatment obligations. See WTO (2004b).