BONELESS MANUFACTURING BEEF ORIGINATING IN OR EXPORTED
FROM THE EUROPEAN ECONOMIC COMMUNITY IN RESPECT OF WHICH SUBSIDIES
HAD BEEN PAID DIRECTLY OR INDIRECTLY BY THE EUROPEAN ECONOMIC
COMMUNITY AND/OR THE GOVERNMENT OF A MEMBER STATE
Review No.: RR-95-003
TABLE OF CONTENTS
Ottawa, Monday, July 22, 1996
IN THE MATTER OF a review, under subsection 76(2) of the
Special Import Measures Act, of the order made by the
Canadian International Trade Tribunal on July 22, 1991, in Review
No. RR-90-006, continuing, without amendment, the finding made by
the Canadian Import Tribunal on July 25, 1986, in Inquiry No.
The Canadian International Trade Tribunal, under the provisions
of subsection 76(2) of the Special Import Measures Act, has
conducted a review of its order made on July 22, 1991, in Review
No. RR-90-006, continuing, without amendment, the finding made by
the Canadian Import Tribunal on July 25, 1986, in Inquiry No.
Pursuant to subsection 76(4) of the Special Import Measures
Act, the Canadian International Trade Tribunal hereby rescinds
the above-mentioned order.
Arthur B. Trudeau
Arthur B. Trudeau
Michel P. Granger
Michel P. Granger
Special Import Measures Act - Whether to rescind or
continue, with or without amendment, the order made by the Canadian
International Trade Tribunal on July 22, 1991, in Review No.
RR-90-006, continuing, without amendment, the finding made by the
Canadian Import Tribunal on July 25, 1986, in Inquiry No.
Place of Hearing: Ottawa, Ontario
Dates of Hearing: May 21 to 23, 1996
Date of Order and Reasons: July 22, 1996
Tribunal Members: Arthur B. Trudeau, President Member
Raynald Guay, Member
Desmond Hallissey, Member
Director of Research: Sandy Greig
Research Manager: Don Shires
Statistical Officers: Jeremy Weinstein
Counsel for the Tribunal: Hugh J. Cheetham
Registration and Distribution Officer: Pierrette Hébert
Participants: Peter Clark
for Canadian Cattlemen’s Association
A Division of Lakeside Feeders Ltd.
Dairy Farmers of Canada
Gordon B. Greenwood
Brian J. Barr
for The Irish Food Board
David K. Wilson
for Australian Meat and Live-stock Corporation
(Exporter/Party Supporting the Industry)
Peter E. Kirby
for Uni Foods Inc.
Foodane APS Denmark
Richard S. Gottlieb
Darrel H. Pearson
for Delegation of the
European Commission in Canada
Otto H. Larsen
Government of Denmark
Canadian Cattlemen’s Association
Canadian Cattlemen’s Association
Canadian Cattlemen’s Association
M.G.I. Packers Inc.
Acting Director General
International Trade Policy Directorate
Department of Agriculture and Agri-Food
Export and Import Controls Bureau
Department of Foreign Affairs and
Business Operations General Manager
Lakeside Packers, A Division of Lakeside
Director, International Markets
The Irish Food Board
Ashbourne Meat Processors Ltd.
Uni Foods Inc.
Thorkild S. Rasmussen
Head of Unit, Beef Division,
DG VI (Agriculture)
Bruce J. Standen
Australian Meat and Live-stock Corporation
Address all communications to:
Canadian International Trade Tribunal
Standard Life Centre
333 Laurier Avenue West
This is a review, under subsection 76(2) of the Special
Import Measures Act  (SIMA), of the order made by the Canadian
International Trade Tribunal (the Tribunal) on July 22, 1991, in
Review No. RR-90-006, continuing, without amendment, the finding
made by the Canadian Import Tribunal (the CIT) on July 25, 1986, in
Inquiry No. CIT-2-86, concerning boneless manufacturing beef
originating in or exported from the European Economic Community in
respect of which subsidies had been paid directly or indirectly by
the European Economic Community and/or the government of a member
Pursuant to subsection 76(2) of SIMA, the Tribunal initiated a
review of the order and issued a notice of review  on February 9, 1996. A notice of
change of date of the public hearing  was issued on February 16, 1996. These notices
were forwarded to all known interested parties.
As part of this review, the Tribunal sent comprehensive
questionnaires to Canadian packers and importers of boneless
manufacturing beef. From the replies to these questionnaires and
other sources,  the
Tribunal’s research staff prepared public and protected pre-hearing
staff reports. The record of this review consists of all relevant
documents, including the notice of review, the notice of change of
date of public hearing, public and confidential replies to the
questionnaires, the public and protected pre-hearing staff reports
for this review, as well as the 1986 finding, the 1991 order and
the public and protected pre-hearing staff reports for the 1991
review. All public exhibits were made available to interested
parties, while protected exhibits were provided only to independent
counsel who had filed a declaration and confidentiality undertaking
with the Tribunal.
Public and in camera hearings were held in Ottawa,
Ontario, from May 21 to 23, 1996.
The Canadian Cattlemen’s Association (CCA) and Lakeside Packers,
A Division of Lakeside Feeders Ltd. (Lakeside Packers) were
represented by counsel at the hearing.  They submitted evidence and made argument in
support of continuing the order. M.G.I. Packers Inc. (M.G.I.)
appeared without counsel, in support of the CCA’s position and to
represent the company’s interests. The Australian Meat and
Live-stock Corporation (AMLC) was also represented by counsel at
the hearing, submitted evidence and made argument in support of
continuing the order.
The Irish Food Board (IFB), the Delegation of the European
Commission in Canada (the European Commission) and Uni Foods Inc.
(Uni Foods) were represented by counsel at the hearing, submitted
evidence and made argument in support of rescinding the order.
Foodane APS Denmark was represented by counsel for Uni Foods, but
did not submit evidence. The Government of Denmark was represented
by the Minister Counsellor of the Royal Danish Embassy in Ottawa,
but did not submit evidence or make argument. The Canadian Meat
Importers Committee made a written submission in support of
rescinding the order, but was not represented by counsel and did
not participate in the public hearing.
The product which is the subject of this review is boneless
manufacturing beef. Beef is the primary product resulting from the
slaughter of cattle. There are two types of beef: high-quality beef
(non-subject goods), derived primarily from heifers and steers; and
boneless manufacturing beef, derived primarily from cows culled
from the beef cattle cow-calf herd and from the dairy herd.
 A secondary source
of boneless manufacturing beef is from the carcass trimmings from
heifers and steers.
Boneless manufacturing beef is comprised of two product groups:
grinding beef and beef cuts for further processing. Grinding beef
is used for manufacturing hamburger patties, ground beef and
further processed products, such as wieners and sausages. The
industry standard for grinding beef is 85 percent chemical lean
(i.e. the fat content is 15 percent). Beef cuts are processed into
deli meats, such as pastrami and corned beef, and are used in the
manufacture of controlled portion cuts for the foodservice
Domestic boneless manufacturing beef is sold primarily in the
fresh state, while imported boneless manufacturing beef enters
Canada in the frozen state.
On July 25, 1986, in Inquiry No. CIT-2-86, the CIT found that
the importation into Canada of boneless manufacturing beef
originating in or exported from the European Economic Community in
respect of which subsidies had been paid directly or indirectly by
the European Economic Community and/or the government of a member
state was likely to cause material injury to the production in
Canada of like goods. On July 22, 1991, in Review No. RR-90-006,
the Tribunal continued, without amendment, the finding of the
In the 1986 finding, the CIT noted that the market for cattle in
North America was a continental market with prices being freely
determined by supply and demand and that the general level of
prices was governed by conditions in the United States. However,
the CIT found that prices in Canada moved independently of those in
the United States within certain limits known as the import ceiling
and the export floor. The export floor provided a safety net below
which Canadian beef prices could not fall before cattle would be
traded with the United States rather than sold to domestic packers.
The open border with the United States had insulated the domestic
industry from the adverse effects of the low-cost subsidized
With respect to the likelihood of injury, the CIT noted that EEC
exports of subsidized beef to the United States were limited to
5,000 tonnes per year. In 1984, five times that amount entered
Canada. As a net exporter of beef, primarily to the United States,
Canada was faced with charges that it was a backdoor broker for EEC
subsidized beef to enter the United States, and bills were
introduced in the US Congress to address this concern. The CIT was
persuaded that, in the absence of measures to limit EEC subsidized
imports into Canada, US retaliation would restrict Canadian cattle
trade with the United States, which would devastate the Canadian
beef industry. In light of the circumstances, the CIT found that
subsidized imports of boneless manufacturing beef from the European
Economic Community were likely to cause material injury to the
production in Canada of like goods.
In the 1991 order, the Tribunal found that there was a
likelihood of a resumption of subsidized imports, given the
continuing existence of the EEC agricultural support programs and
the presence of the surplus of beef that the European Economic
Community maintained in “intervention stocks.” The Tribunal noted
that the intervention stocks could be used to supply Irish and
Danish customers, thereby making new production available for
export to Canada. The Tribunal concluded that the European Economic
Community’s substantial export capacity would allow it to supply
Canada with volumes equal to or exceeding those exported in
The Tribunal found that there was a likelihood of material
injury to domestic packers and to live animal producers from a
resumption of subsidized imports. The evidence indicated that
boneless manufacturing beef was very price-sensitive. Accordingly,
EEC exporters would have to price below prevailing market prices in
Canada in order to reenter the market and would be able to do so
because of the EEC subsidy programs.
Because of the weak financial position of the beef packing
industry and the tight margins under which it operated, the
Tribunal was of the view that the meat packers would not be able to
respond to the increased price competition. Under these
circumstances, the industry would abandon significant market share
and, consequently, production of boneless manufacturing beef and
the demand for cattle would be reduced.
The Tribunal reached these conclusions without considering the
impact on the industry of retaliation by the United States against
Canadian exports of live cattle or beef.
The CCA, the Dairy Farmers of Canada and Lakeside Packers took
the position that the finding should be continued. Counsel for the
domestic producers argued that the European Union would continue to
subsidize beef exports to Canada. Counsel also argued that, even
with the scheduled reductions to the restitution (subsidy) levels
under the World Trade Organization (WTO) Agreement on
the restitution levels are flexible in terms of the levels set for
individual products and countries and are structured in a way as to
ensure access to a market under changing market conditions. Counsel
noted that the restitution available for Canada has not been used
for a number of years and that the level would likely be reviewed
by the European Union. Moreover, it was submitted that SIMA is
concerned with all subsidies, not only with export subsidies
referred to in the Canada-European Union Agreement  (the Agreement). Counsel argued
that all European beef is subsidized and that there are generous
Counsel for the domestic producers argued that the bovine
spongiform encephalopathy (BSE) scare  in the European Union reduced consumption of
beef in Europe and created excess supply. Counsel contended that a
partial recovery of consumption is likely, but not a complete
recovery. Counsel pointed out that, even if EU consumption
recovered to 90 percent, there would remain 750,000 tonnes of
oversupply for the EU market. It was submitted that the oversupply
would increase intervention purchases and stocks. Counsel
acknowledged that intervention beef cannot be marketed directly to
Canada, but argued that large stocks permit EU producers to export
production directly from slaughterhouses to Canadian importers.
Counsel for the domestic producers argued that the industry is
vulnerable to subsidized imports of EU boneless manufacturing beef.
They explained that, for most of the previous 10 years, the
Canadian cattle industry experienced growth and that, by 1995, the
domestic beef cow herd had increased to record levels. However, the
cattle industry is entering the reduction phase of the cattle
cycle. Over a two- to three-year period, approximately 15 to 20
percent of the beef cow herd will be culled, and the supply of
slaughter cows and boneless manufacturing beef will increase
significantly. Counsel argued that the market for boneless
manufacturing beef is already saturated and that prices for cattle
and boneless manufacturing beef are low. According to counsel, the
rising supply of slaughter cattle and boneless manufacturing beef
will further reduce the returns to packers that will, in turn,
reduce their price offers for domestic cows. Counsel argued that
cattle producers will lose revenue on domestic sales and will
increase cattle exports to the United States.
Counsel for the domestic producers argued that a resurgence of
subsidized EU imports will exacerbate the circumstances facing
domestic packers and cattle producers and cause material injury by
suppressing the price for boneless manufacturing beef and
subsequently eroding the prices for cows. Moreover, reduced
revenues for packers will place them at a disadvantage when
competing with US cattle buyers in Canada, therefore increasing the
volume of cattle shipped to the United States and the threat of
retaliatory trade action by the United States.
According to counsel for the domestic producers, the
displacement of domestic slaughter cattle by subsidized imports of
EU boneless manufacturing beef would be interpreted by the United
States as providing backdoor access for EU beef to the US market,
thereby circumventing the access level permitted by the United
States for EU beef. As indicative of the emotional nature of the
market, counsel noted the US imposition of a 100 percent duty on
the 5,000 tonnes of imports allocated to the European Union for the
US market, in response to the hormone ban imposed by the European
Union. Counsel argued that any disruption in access to the US
market would be injurious to cattle producers, packers and boners
and noted that the processing sector requires high levels of
capacity utilization in order to remain competitive.
It was the CCA’s position that not one pound of subsidized
imports of EU boneless manufacturing beef is acceptable. Counsel
for the domestic producers argued that the European Union’s
unilateral proposal to the Canadian government to restrict the
volume of subsidized imports was accepted by the Canadian
government without the agreement of the CCA and without any
consideration as to whether or not that volume would be injurious.
According to counsel, it is not envisaged, within SIMA, that these
types of undertakings can be offered or accepted; moreover, it is
totally inappropriate to be dealing with the European Union’s
undertaking or for the industry to be asked to recommend what level
of subsidized imports would be appropriate for it.
The AMLC submitted that the finding should be continued. Counsel
for the AMLC argued that continuation is essential to prevent a
resurgence of low-priced EU imports into Canada, supported by state
subsidies and interventions in response to the BSE scare. Counsel
argued that the BSE scare severely depressed consumption in the
European Union. Counsel submitted that the European Union’s
immediate responses to the BSE scare, increasing intervention
purchases and the subsequent creation of a special fund of $1.5
billion to boost sales of EU beef within Europe are indicative of
the seriousness of the crisis. In order to relieve the pressure of
oversupply, counsel argued that the European Union would attempt to
increase its exports, even though domestic and international
supplies of boneless manufacturing beef are high and prices are
depressed. In the case of Canada, counsel argued that the European
Union would reexamine and adjust the restitution level to that
necessary to move product into the Canadian market, with a
consequent loss of market share by domestic producers and
non-subsidized exporters, such as Australian producers.
In the view of counsel for the AMLC, the European Union is under
considerable pressure to export substantial quantities of beef.
Counsel argued that it would be improper for the Tribunal to place
any weight on the European Union’s offer to limit subsidized
exports to 5,000 tonnes. In counsel’s view, there is no agreement
between Canada and the European Union because the offer is part of
an agreement that: (1) deals with a number of trade issues; (2) has
not been drafted in its final form; (3) has not been signed; (4)
only comes into effect upon being signed; and (5) is still under
negotiation in certain key aspects. Counsel submitted that the
process for granting undertakings under SIMA has not been followed.
Having attempted to make an undertaking in 1986, which was turned
down, the European Union should not be permitted to gain access
through the back door. Counsel further argued that the government’s
desire to resolve outstanding trade issues should not be the basis
for rescinding the finding.
The IFB was in favour of rescinding the finding. Counsel for the
IFB argued that the Agreement was a binding agreement. In this
regard, counsel pointed out that 5,000 tonnes of subsidized imports
of EU beef amounts to only one quarter of the volume that the CIT
had found to cause a threat of injury in 1986, when the CIT feared
that, without a finding of threat of injury, even greater volumes
would enter the Canadian market from the European Union. Counsel
also pointed out that the Canadian market has increased since the
Counsel for the IFB suggested that the Tribunal consider other
evidence in support of a decision to rescind the finding: (1) that
changes in exchange rates have greatly reduced the competitiveness
of EU beef in Canada; (2) that EU beef would be uncompetitive
without restitution payments and may be uncompetitive even if
restitution levels were changed; (3) that the remaining unallocated
portion of the tariff rate quota (TRQ) was not even enough to cover
the 5,000 tonnes; and (4) that it was likely that these tonnes
would be divided between packers and boners in at least three
member states and, thus, individual sales may be of very small
Counsel for the IFB acknowledged the fact that the European
Union would continue to subsidize the subject goods, but submitted
that the Tribunal should consider the reliability of the European
Union in keeping international commitments similar to the
Agreement, as reflected in the evidence relating to the agreement
between the European Union and the United States and, in
particular, to the Andriessen Agreement between the European Union
and Australia. With respect to the impact of the BSE situation,
counsel stated that responsibility for dealing with this issue did
not rest with the Tribunal.
Turning to the issues of diversion and retaliation, counsel for
the IFB took the Tribunal through a number of aids to argument
which set out trends in cattle exports, imports of the subject
goods and pricing over the last 15 years. They submitted that this
evidence revealed no consistent identifiable relationship between
these factors during this period and, thus, submitted that, because
there was no link between these factors, the argument that
retaliation would follow from increased imports of the subject
goods into Canada could not be sustained. In addition, they
submitted that the expansion plans of Lakeside Packers, when fully
implemented, would overwhelm any possible effect from the 5,000
tonnes because the amount of cattle that Lakeside Packers would
purchase, 500,000 head, represents approximately half of Canada’s
net trade surplus in cattle with the United States in 1995. This
amount would relieve any pressure in the US market that may result
from displacement of cattle in Canada due to the importation of
5,000 tonnes of the subject goods from the European Union.
Uni Foods was in favour of rescinding the finding. Counsel for
Uni Foods argued that the evidence before the Tribunal establishes
that there is a binding agreement between Canada and the European
Union to limit subsidized imports of EU boneless manufacturing beef
into Canada to 5,000 tonnes per year. He submitted that there is no
argument that the European Union subsidizes beef and, thus,
acknowledged that the evidence before the Tribunal establishes that
there is a propensity to subsidize. Counsel contended that it
remains for the Tribunal to determine whether 5,000 tonnes of
subsidized imports is likely to cause material injury.
Counsel for Uni Foods argued that the evidence does not support
continuation of the finding. The current reduction phase of the
cattle cycle is not evidence of vulnerability, but rather, in his
view, a condition facing all cyclical industries. He argued that it
is not the Tribunal’s mandate to protect industries from cycles.
Counsel further observed that the industry has experienced a record
period of growth in the beef cow herd and noted that herd buildup
occurs when the industry is healthy.
Counsel for Uni Foods argued that 5,000 tonnes of subsidized EU
imports is too low a volume to provide an incentive for individual
EU exporters to buy market share. Instead, the limited volume of EU
imports permitted is an incentive for exporters to attempt to
obtain the highest possible price. He further submitted that the
5,000 tonnes of EU imports will not influence domestic prices.
Counsel noted that, during the 1991-93 period, considerably greater
volumes of Australian and New Zealand beef entered the Canadian
market and that, although the price of that product declined over
the period, Canadian domestic prices increased and tracked US
prices. Counsel contended that, currently, import prices basically
track prevailing North American prices.
The threat of US retaliation, argued counsel for Uni Foods, is
not supported by the evidence. Even though there have been huge
increases in exports of cattle and beef to the United States since
1991, there has been no retaliation. In counsel’s view, if exports
to the United States have not been an issue to date, then an
additional 5,000 tonnes of beef, which equates to approximately
25,000 to 35,000 head of cattle, will not be an issue.
On the issue of displacement, counsel for Uni Foods argued that
the Canadian market is not saturated. He noted that Lakeside
Packers plans to produce an additional 140 short tons per day of
boneless beef, of which 50 short tons per day will be coarse ground
beef and the remaining 90 short tons will be boneless beef. Counsel
also submitted that Lakeside Packers did not anticipate any market
disruption from the addition of this product. In counsel’s view,
this evidence shows that the market can absorb huge amounts of
Counsel for Uni Foods further argued that some processors of
boneless manufacturing beef that export to the United States are
not being properly served by the domestic industry. He submitted
that about 73 percent of the requests to domestic producers for
boneless manufacturing beef by applicants for supplementary import
permits were refused or not responded to by the producers. Counsel
noted that beef that entered Canada under supplementary import
permits amounted to 37,000 tonnes in 1994 and 14,742 tonnes in
1995. He argued that these imports were non-injurious because
domestic producers were given the first opportunity to supply that
demand, but were unable to do so.
Counsel for the European Commission argued that the finding
should be rescinded, as there has been a change in circumstances
under which a threat of injury likely to be caused by subsidizing
is no longer foreseen and imminent. Counsel argued that, because
there will be a limit on the volume of subsidized boneless
manufacturing beef permitted to be exported to Canada, the limit
precludes any likelihood that those exports will cause material
injury. Respecting the limit on the volume of subsidized exports,
counsel noted that the European Union will adopt an export
licensing system similar to that which has been used to control the
level of EU beef exports to the United States since 1979. Under
that system, the EU exporter would apply for an export licence via
the relevant authority of one of the member states authorized to
export beef to Canada. The applications would be submitted to the
European Commission on a quarterly basis. The export licence would
specify the conditions to be met by the exporter. At the point of
export, upon presentation of the export licence, EU customs
officials would issue an identity certificate to accompany the
consignment. The original certificate would be presented to Canada
Customs upon arrival of the shipment.  Counsel argued that, on the balance
of probabilities and a reasonable weighing of the evidence, the
Tribunal should find that it is unforeseen and not imminent that
more than 5,000 tonnes of subsidized beef will enter Canada per
annum in the foreseeable future.
Counsel for the European Commission submitted that the CCA
failed to show that it would suffer material injury due to the
importation of 5,000 tonnes of subsidized beef from the European
Union. Counsel argued that, as a matter of principle, the CCA has
taken the position that not one pound of subsidized boneless
manufacturing beef should enter Canada. Counsel submitted that the
CCA provided no evidence to substantiate its claim that material
injury would occur in the form of retaliation by the United States
in response to increases in Canadian exports of cattle resulting
from displacement by imports of EU beef. Counsel argued that the
5,000 tonnes of EU beef would amount to between 25,000 and 38,000
head, which would be more than ameliorated by Lakeside Packers’
plan to increase its annual slaughter by 500,000 head and by the
displacement of some 12,000 to 15,000 tonnes of imported oceanic
boneless manufacturing beef as a result of Lakeside Packers’ plan
to enter the production of coarse ground beef. Counsel also noted
that the AMLC estimated that Australian exports in 1996 would
amount to 24,000 tonnes or 60 percent of Australia’s allocation of
the TRQ. Counsel argued that the remaining 18,000 tonnes of
Australian quota, more than three times the access level under the
Agreement, could be used by the European Union. In counsel’s view,
the impact of 5,000 tonnes of subsidized imports from the European
Union alleged by the CCA is conjectural.
Turning to the processing sector, counsel for the European
Commission submitted that no evidence of financial difficulty was
submitted by either Lakeside Packers or M.G.I. Counsel noted the
submission of M.G.I. alleging that it would have difficulty
securing adequate supplies of reasonably priced cattle if
subsidized EU beef entered the market. Counsel argued that, in
light of the growing supply of cattle predicted by the CCA, even
the displacement of 38,000 head from the market would not put
M.G.I. in an inadequate supply position.
Counsel for the European Commission submitted that the
industry’s allegation that the 5,000 tonnes of EU beef would be
sold at discount prices is based on the lower-valued beef that was
shipped from the European Union 10 years ago when the product was
largely 65 percent chemical lean and the volume of EU imports was
unlimited. Counsel argued that it is inappropriate to compare the
prices in the two time periods. Counsel further argued that a price
of $1.50/lb. would be required at the current restitution level for
the Canadian market to be attractive to EU exporters of boneless
manufacturing beef. Alternatively, an increase in the restitution
level of 65 to 67 percent would be required. Counsel submitted that
neither was likely according to the evidence of the witnesses for
Counsel for the European Commission argued that 5,000 tonnes of
EU imports, which amounts to 1.5 percent of the 1995 market, would
have no influence on market prices. They noted that the difference
between Australian and domestic prices during 1994 and 1995 was not
held to be materially injurious by the industry nor was the
difference between US and domestic prices in the same time period.
Counsel argued that there is no basis for concluding that the
pricing of 5,000 tonnes of subsidized imports of EU boneless
manufacturing beef will be injurious to the domestic industry.
Section 76 of SIMA provides that, on completion of a review, the
Tribunal shall rescind an order or finding, or continue it with or
without amendment. In making its decision in this matter, the
Tribunal must deal with two fundamental questions. First, the
Tribunal must determine whether a resurgence of subsidized imports
of boneless manufacturing beef from the European Union is likely,
if the order is rescinded. Second, the Tribunal must determine
whether such a resurgence of subsidized imports is likely to cause
In this particular case, however, there is one issue of such
importance in assessing the two fundamental questions that the
Tribunal has decided to consider it at the outset. The issue is
whether there exists between Canada and the European Union an
agreement to limit EU export subsidies on boneless manufacturing
beef destined for Canada to no more than 5,000 tonnes annually.
On December 5, 1995, the Minister for International Trade and
the Minister of Agriculture and Agri-Food announced that Canada and
the European Union had reached the Agreement to settle several
outstanding trade issues. 
The text of the Agreement, insofar as it affects beef trade, is
The EC [European Community [ The word "Community"
replaced the word "Commission" in brackets in the English version
of the statement of reasons as per the erratum issued by the
Tribunal on July 24, 1996.] ] will limit export subsidies on
fresh, chilled or frozen beef and veal destined for Canada to no
more than 5,000 tonnes annually. 
EU export subsidies  are designed to compensate for the amount by
which domestic prices within the European Union exceed prices in
export markets. Export subsidies are limited to designated
countries of destination, of which Canada is one. The level of
subsidy varies from country to country and depends on local market
conditions. There is, however, a constraint on overall expenditure
levels. Under the WTO Agreement on Agriculture, the European
Union has committed itself to reducing the global subsidy level.
Officials from the Canadian and EU governments testified with
respect to the Agreement. They explained that the Agreement was
meant to deal with a number of long-standing trade irritants
between Canada and the European Union, including the trade in
fresh, frozen or chilled beef. They stated that the Agreement
represented a valid agreement between the two parties which had
already been implemented to a great degree, notwithstanding that
the final signing had not taken place. Implementation was reflected
in a number of actions of the two parties, including: (1) the
Order-in-Council issued by the Governor General in Council,
authorizing the Minister of Foreign Affairs either to sign the
Agreement or to take specified steps to have the Agreement signed
on behalf of the Government of Canada and to take the action
necessary to bring the Agreement into force;  and (2) the decision of the EU
Council of Ministers authorizing the signing of the Agreement.
Mr. Phil Jensen, Acting Director General of the International
Trade Policy Directorate of the Department of Agriculture and
Agri-Food, indicated that, in his experience, it was not unusual to
have agreements, such as the Agreement, signed on an ad
referendum basis and to have parties implement them before
final signature. He also stated that the Government of Canada was
of the view that it was a valid agreement, binding on both Canada
and the European Union.  Mr. Thorkild S. Rasmussen, Head of Unit, Beef
Division, DG VI (Agriculture), European Commission, concurred in
this view. 
With respect to the particulars of the Agreement, Mr. Jensen
explained that it provides that the European Union will limit the
amount of beef that may receive export subsidies to 5,000 tonnes.
He confirmed that there was no limit on the amount of export
subsidy that could be provided in respect of beef that was covered
by the Agreement. He stated that the Agreement should not be seen
as a voluntary export restraint because it limits the use of export
subsidies, not exports. He concurred that the Agreement contained
no specific time limitation or period, but explained that this was
usual in these types of agreements. On the likelihood of the agreed
level being raised through renegotiation, Mr. Jensen testified that
the Agreement is intended to continue for some period in the
With respect to the relationship of the Agreement to the current
TRQ limitation of 76,809 tonnes, Mr. D.E. Hobson, Director General
of the Export and Import Controls Bureau of the Department of
Foreign Affairs and International Trade explained that the
Agreement did not affect this limit nor the current quota
allocations to Australia and New Zealand. Therefore, EU exporters
would have to compete with beef from other sources, including
Australia and New Zealand, for the unallocated 4,809 tonnes left in
the TRQ. 
Furthermore, based on the evidence of Mr. Hobson, only EU beef not
subject to the Agreement, i.e. beef that does not receive export
subsidies, would be eligible for supplementary import permits.
Mr. Rasmussen explained in some detail the steps taken by the
European Union to implement the Agreement and the manner in which
it would be managed by the European Union through its export
licensing system.  He affirmed that an export licence would be
required to export beef from the European Union to Canada.
The government officials, as well as many of the witnesses
called by other parties, discussed somewhat similar agreements
between the European Union and the United States and between the
European Union and Australia (the Andriessen Agreement). It was
noted that, while the agreement with the United States had been
implemented in a similar manner as the Agreement, the Andriessen
Agreement had not been formalized and, yet, was still functioning
as designed, about 10 years after it came into effect.
In the Tribunal’s view, the evidence shows that, notwithstanding
that a final form of the Agreement has not been signed, there
exists between the European Union and Canada an agreement relating
to a wide range of agricultural products, including the subject
goods, which both parties consider binding on each other. The
parties have taken all actions necessary, short of signing the
final text, to implement the Agreement and are currently acting in
a manner consistent with their obligations under the Agreement.
Having found that there exists between Canada and the European
Union an agreement relating to subsidized imports of the subject
goods, the Tribunal concludes that, if it rescinds the order, the
European Union will likely recommence shipments of subsidized
boneless manufacturing beef to Canada. The Tribunal now turns to
consider whether there is a likelihood of injury to producers of
boneless manufacturing beef as a result of a resurgence of
shipments of subsidized boneless manufacturing beef from the
European Union to Canada.
At the outset of the hearing, the Tribunal noted that, unlike
the 1986 and 1991 cases, it is proceeding under SIMA as amended by
the World Trade Organization Agreement Implementation Act.
previously defined material injury, in part, as “material injury to
the production in Canada of like goods.” Injury is now defined as
“material injury to a domestic industry” and domestic industry is
defined, in part, as “domestic producers as a whole of the like
goods or those domestic producers whose collective production of
the like goods constitutes a major proportion of the total domestic
production of the like goods.” The Tribunal notes that, as a result
of these amendments, the phrase “production in Canada of like
goods” is no longer found in domestic law. The Tribunal requested
counsel to address these amendments in argument.
Counsel for the CCA submitted that, previously, the Tribunal was
directed to take into account provisions of particular
international agreements. As a result of the WTO amendments, the
wording of those provisions has been incorporated into domestic law
and, thus, nothing has really changed in respect of the basis upon
which the decisions as to the domestic industry were made in 1986
and 1991. Counsel for the IFB, for Uni Foods and for the European
Commission essentially agreed with this conclusion, i.e. that no
substantial change has occurred in terms of the definition of
“domestic industry” in SIMA. They submitted, however, that the CIT
in 1986 and the Tribunal in 1991 erred by including the cattlemen
as part of the domestic industry and questioned whether the
evidence in the record relating to the packers and boners was
sufficient for the Tribunal to decide whether there was a
likelihood of injury to a major proportion of the domestic
The Tribunal is of the view that whether the domestic industry
is defined as including the cattlemen or not does not change the
conclusion that the Tribunal reaches below, i.e. if the order is
rescinded, producers of boneless manufacturing beef are not likely
to be injured.
In assessing the likelihood of injury, the Tribunal first
considered whether there were other support or subsidy programs
available, apart from export subsidies, that would enable EU
boneless manufacturing beef to be exported to Canada. In this
regard, the Tribunal accepts the submission of the domestic
industry  and
the witnesses for the European Commission  and for the IFB  that imports of EU boneless
manufacturing beef could not be price-competitive in the Canadian
market in the absence of export subsidies. The Tribunal is also
satisfied that intervention stocks  cannot be sold in the Canadian market because
it is not possible to trace the origin of the beef and, thus, meet
the requirements of the Department of Agriculture and Agri-Food for
the importation of beef into Canada. 
For all of the above reasons, the Tribunal is of the opinion
that, if the order is rescinded, the likely volume of subsidized
boneless manufacturing beef exported to Canada will be no more than
5,000 tonnes per year. The question before the Tribunal now becomes
whether there is a likelihood of injury to domestic producers of
boneless manufacturing beef from the importation into Canada of no
more than 5,000 tonnes of subsidized EU manufacturing beef.
In assessing the likelihood of injury to the domestic producers,
the Tribunal notes that the situation in 1996 contrasts sharply
with the situation in 1986. In the inquiry, the CIT considered the
impact of significantly higher import levels, 22,000 tonnes in 1984
and 11,000 tonnes in 1985,  which represented significantly higher shares of
the apparent market than in the present review, where the maximum
import volume of 5,000 tonnes represents about 1.5 percent of the
Although the volume of subsidized exports may be small, the
domestic producers argued that the additional exports would be
coming into a market already saturated with product offered at low
prices. The producers led evidence to indicate that cattle
production is currently at the top of its cycle  and is entering the reduction
phase of the cycle. During this phase of the cycle, cattle
producers are facing low prices and are forced to cull their cow
herds to maintain income. This contributes to even greater supplies
of boneless manufacturing beef and exerts further downward pressure
In 1995, domestic production of boneless manufacturing beef was
332,841 tonnes, the highest level in five years.  Moreover, domestic prices had
declined from a peak of $1.65/lb. in the fourth quarter of 1993 to
$1.13/lb. in the fourth quarter of 1995.  The prices for Alberta and Ontario
culled cows showed a similar trend.  Given the cattle cycle, the CCA expects that
low prices and increased domestic production will persist over the
next two to three years, the period required for the culling
process to bring supply and demand into line.
Under such circumstances, the producers argued that even small
increases in the volume of imported boneless manufacturing beef in
the market will displace domestic manufacturing beef, that the
subsidized imports will suppress the prices of domestic boneless
manufacturing beef and cows and that there will be potential
retaliatory action by the United States against increased cattle
shipments from Canada.
In assessing the producers’ argument, the Tribunal considered
the likely prices at which it expected the subsidized boneless
manufacturing beef from the European Union to be sold in the
Canadian marketplace. To do so, the Tribunal considered the likely
level of export subsidy to be established for the Canadian market
and the likely pricing strategies of the EU exporters that, in
aggregate, could ship no more than 5,000 tonnes.
The current level of export subsidy to Canada has been in place
for 10 years. 
At December 1995 exchange rates, exports to Canada were eligible
for a subsidy of about $0.60/lb.  or 52 percent of the domestic price of $1.15/lb.
in December 1995. Export subsidy levels for individual countries
are set by the European Union and may vary. According to Mr.
Rasmussen, the European Union will have to look at the current
subsidy level and prices in the European Union and Canada to assess
whether any adjustment to the export subsidy level is required to
enable EU boneless manufacturing beef to be exported to Canada. Mr.
Rasmussen stated that it was not the intention of the European
Union “to dump or to undercut any markets.  ”
As for individual exporters, the Tribunal accepts the argument
that the small volume of subsidized imports permitted under the
Agreement provides no incentive for selling at low prices in order
to buy market share. The expected quota allocation system that will
subdivide the quota between countries and between packers within
countries  will
further remove any incentive to buy market share. An exporter
indicated at the hearing that he would serve the Canadian market
based on the available price in the Canadian market, the subsidy
level and the ability to make a profit in that situation.  He would not consider
shipping boneless manufacturing beef to Canada at a loss. 
Based on the above, the Tribunal is satisfied that, if the order
is rescinded, the prices, in Canada, of subsidized boneless
manufacturing beef exported from the European Union will likely be
at the prevailing prices for boneless manufacturing beef sold in
In the Tribunal’s view, it is also likely that the imports of
boneless manufacturing beef from the European Union, which will be
predominately frozen, will displace frozen boneless manufacturing
beef that otherwise would have come from other countries under the
TRQ or the supplementary import permits policy. In this regard, the
Tribunal notes that the supplementary import permits policy was put
in place to meet market needs because, in recent years, there has
not been sufficient domestic boneless manufacturing beef available
to meet the demand for beef of a quality needed by further
processors and other users at US competitive prices.  The Tribunal also
notes that Australia will likely fall short of its 1996 allocation
within the TRQ by some 18,000 tonnes of beef.  The Tribunal considers that, for
1996 at least, 5,000 tonnes of EU beef will simply replace
Australian beef that has vacated the market.
For all of the above reasons, the Tribunal considers that the
importation of no more than 5,000 tonnes of subsidized boneless
manufacturing beef from the European Union to Canada will not
likely suppress the prices of domestic boneless manufacturing beef,
will not likely reduce the use of domestic boneless manufacturing
beef and will not likely affect the profitability of the domestic
producers. Moreover, the Tribunal considers that the prices of cows
in Canada will not likely be affected, and there is no foreseeable
concern about increased cow shipments to the United States and for
In the course of its deliberations, the Tribunal considered the
likely impact on domestic producers of factors other than the
importation of 5,000 tonnes of subsidized EU boneless manufacturing
beef. In the Tribunal’s view, the effect of 5,000 tonnes of
subsidized imports of boneless manufacturing beef from the European
Union on domestic producers pales in comparison with the impact of
the culling of the cow herd which, over the next few years, is
expected to increase the supply and depress the prices of boneless
manufacturing beef. At the same time, the Tribunal notes that there
have been developments that may lessen the negative impact of the
reduction phase of the cattle cycle. For example, Lakeside Packers
plans to produce 50 short tons  of coarse ground beef per day for sale to
grocery retailers. This is a value-added product that will compete
directly with imports of grinding beef. Lakeside Packers’ overall
expansion plan is expected to increase its annual slaughter by
500,000 head of cattle, coincidentally reducing by half the current
trade surplus in cattle with the United States.  The Tribunal also notes that
the report of the Beef Industry Trade and Development Committee
 shows that the
packers and cattlemen are pursuing a greater degree of co-operation
and that domestic packers are taking steps to increase their use of
For these reasons, the Tribunal is persuaded that there is no
likelihood of injury to domestic producers from the annual
importation of not more than 5,000 tonnes of subsidized EU boneless
manufacturing beef into Canada. Therefore, the Tribunal rescinds
the order in respect of subsidized boneless manufacturing beef
originating in or exported from the European Union.
1. R.S.C. 1985, c.
S-15, as amended by S.C. 1994, c. 47.
2. Canada Gazette Part
I, Vol. 130, No. 7, February 17, 1996, at 537.
3. Canada Gazette Part
I, Vol. 130, No. 8, February 24, 1996, at 574.
4. The Department of
Agriculture and Agri-Food, Statistics Canada, the Department of
Foreign Affairs and International Trade and CanFax Research.
5. The Dairy Farmers
of Canada was also represented by counsel, but did not file a
submission or attend the public hearing.
6. There are four
broad classes of cattle slaughtered for beef in Canada: steers,
heifers, cows and bulls. The yield from each of these classes of
cattle includes a percentage of boneless manufacturing beef.
7. Signed at Marrakesh
on April 15, 1994.
8. Tribunal Exhibit
RR-95-003-44, Administrative Record, Vol. 1B at 118, 119 and
9. On March 20, 1996,
UK officials announced that the consumption of beef produced from
cattle infected with BSE could infect humans with Creutzfeldt-Jakob
Exhibit H-4, Administrative Record, Vol. 11B.
Exhibit RR-95-003-44, Administrative Record, Vol. 1B at 117-27.
Exhibit H-2, Administrative Record, Vol. 11B.
13. EEC Regulation
805/68, June 27, 1968, as amended by EEC Regulation 3290/94,
December 22, 1994.
14. The annual
value of the export subsidies is scheduled to decrease from 1,900.6
million ECUs in 1995 to 1,259.4 million ECUs by 2000. Over the same
period, the annual volume of exports eligible for export subsidies
will be reduced from 1.119 to 0.817 million tonnes. Manufacturer's
Exhibit A-1, Annex 4, Administrative Record, Vol. 9.
Exhibit RR-95-003-52, Administrative Record, Vol. 1B at 173.
Decision 95/591/EC, December 22, 1995, Official Journal of the
European Communities , Vol. 38, No. L 334 at 25, Exporter's Exhibit
H-5B, Administrative Record, Vol. 11B.
17. Transcript of
Public Hearing , Vol. 2, May 22, 1996, at 300 and 301.
18. Ibid. at
19. Ibid. at
20. Ibid. at
import permits may be issued for imports of non-NAFTA beef in
excess of the TRQ, under certain terms and conditions and provided
the price is not below the prevailing range of prices for similar
imports of beef into the United States. Tribunal Exhibits
RR-95-003-41 and RR-95-003-43, Administrative Record, Vol. 1 B at
26-42 and 102-108 respectively.
22. The export
licensing system is applicable to exporters of beef to the United
States. Exporter's Exhibit H - 4, Administrative Record, Vol.
23. S.C. 1994, c.
Exhibit A-1, Administrative Record, Vol. 9.
25. Transcript of
Public Hearing , Vol. 2, May 22, 1996, at 561.
26. Ibid . at
intervention system is designed to stabilize markets and to ensure
a fair standard of living for the agricultural community producing
beef and veal. The intervention system involves removing beef from
the EU market to prevent or mitigate a substantial fall in
28. Transcript of
Public Hearing , Vol. 2, May 22, 1996, at 562-64.
Exhibit RR-95-003-8, Administrative Record, Vol. 1.1 at 76.
Exhibit A-2 at 1, Administrative Record, Vol. 9.
Exhibit RR-95-003-5, Administrative Record, Vol. 1 at 177.
32. Ibid. at
33. Ibid. at
34. Transcript of
Public Hearing , Vol. 2, May 22, 1996, at 566.
35. EEC Regulation
2854/95, December 11, 1995. The restitution level was 74.5 ECUs/100
kg, converted to Canadian funds using the December 1995 monthly
average exchange rate of 1.78. This restitution level is lower than
that submitted by the CCA (71¢/lb.) which was the level in June
1995 pursuant to EEC Regulation 1561/95, June 30, 1995.
36. Supra note 34
37. Ibid. at
Exhibit D-4, Administrative Record, Vol. 11.
39. Transcript of
Public Hearing , Vol. 2, May 22, 1996, at 472 and 478.
Exhibit RR-95-003-43, Administrative Record, Vol. 1B at 102.
41. Transcript of
Public Hearing , Vol. 3, May 23, 1996, at 651 and 652.
42. Transcript of
Public Hearing , Vol. 2, May 22, 1996, at 410-20, 436 and 437.
Exhibit RR-95-003-5, Administrative Record, Vol. 1 at 200.
Exhibit RR-95-003-26, Administrative Record, Vol. 7 at 2.
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Initial publication: December 17, 1996