Brussels / Geneva, 31/05/2000 (Agence Europe) - The World Trade Organisation (WTO) Appellate Body has confirmed the illegality of the Canadian "Auto Pact" which enables certain car makers -mostly American- operating in Canada to import spare parts and vehicles duty free. The new report, published on Wednesday, was welcomed by the European Union, which had denounced the system and, together with Japan, called for WTO intervention (see EUROPE of 16 February, page 8).
The verdict, which establishes a number of infringements of certain key provisions of the GATT and the WTO, "will have a significant beneficial impact on the European automobile industry", which currently must pay duties of 6.1% upon entering the Canadian market, noted the European Commission. It is particularly pleased with the condemnation of all the discriminatory aspects of the Auto Pact, namely: i) the exemption from customs duties upon import, which is considered equivalent to de facto discrimination in favour of certain imports (especially from the United States and Mexico), which runs counter to the most-favoured-nation principle; ii) the Canadian value added requirement (local content requirement), which favours the use of national products for the manufacture of motor vehicles, in breach of the national treatment clause; iii) the percentage of production/sales required for entitlement to the exemption, which is considered to be equivalent to an export subsidy of the type prohibited under the WTO Agreement on Subsidies (export performance). The Union now expects Canada "promptly" to correct this system in the light of Geneva's recommendations. According to the Commission, exports of automotive products from the Union to Canada represented more than EUR 1 billion in 1998, of which only 28% benefited from the exemption foreseen under the Canadian system.