## Facts

- The United States challenged Canadian measures affecting “split-run” periodicals—foreign-produced periodicals shipped into Canada with advertising targeted to Canada.
- Canada maintained three relevant measures: (1) Tariff Code 9958 restricting importation of certain periodicals (including split-run editions); (2) Part V.1 of the Excise Tax Act imposing an excise tax on split-run editions; and (3) Canada Post postal rate practices, including “commercial Canadian,” “commercial international,” and “funded” publication mail rates administered through the Publications Assistance Program (PAP).
- Canada characterized the measures as cultural-policy tools intended to support a domestic periodical industry and Canadian-targeted advertising markets.
- A WTO Panel found: the import prohibition violated GATT 1994 Article XI:1 and was not justified under Article XX(d); the excise tax violated Article III:2 (first sentence); the “commercial Canadian” postal rates violated Article III:4; and the “funded” postal rate scheme was permitted as a subsidy under Article III:8(b).
- Canada appealed certain legal issues and interpretations; the United States also filed an appellate submission.
- The Dispute Settlement Body adopted the Appellate Body report and the panel report as modified, and requested Canada to bring inconsistent measures into conformity with GATT 1994.

## Issues

1. Whether the excise tax on split-run periodicals was inconsistent with GATT 1994 Article III:2 (first sentence), including whether the relevant imported and domestic periodicals were “like products” and whether imports were taxed in excess of like domestic products.
2. Whether preferential “commercial Canadian” postal rates, compared to “commercial international” rates, accorded imported periodicals less favorable treatment contrary to GATT 1994 Article III:4.
3. Whether the “funded” postal rate scheme under the PAP qualified as a subsidy “exclusively to domestic producers” within the meaning of GATT 1994 Article III:8(b).
4. Whether measures with links to advertising services should be analyzed under GATT 1994 disciplines on goods (Article III) for purposes of the challenged excise tax and related internal measures.

## Decision

- The Appellate Body upheld the panel’s principal findings, with clarifications.
- The finding that Tariff Code 9958 violated Article XI:1 and was not justified under Article XX(d) remained in force because it was not appealed.
- The Appellate Body held the split-run excise tax violated Article III:2 (first sentence) because the relevant imported and domestic periodicals were “like products” and the measure imposed higher internal taxation on imports.
- The Appellate Body held the commercial postal rate differential accorded imported periodicals less favorable treatment, violating Article III:4.
- The Appellate Body held the “funded” postal rate scheme was a subsidy within Article III:8(b) and therefore was not inconsistent with Article III’s non-discrimination obligations.

## Legal Principles

- GATT 1994 Article III applies to internal taxes and internal measures affecting goods even when those measures have connections to embedded services (such as advertising) if, in substance, the measure is an internal tax or regulation on products.
- Under Article III:2 (first sentence), a breach occurs where “like” imported and domestic products are subject to dissimilar internal taxation and imports are taxed in excess of like domestic products; “likeness” is assessed case-by-case using factors such as characteristics, end-uses, consumer preferences, and tariff classification.
- Under Article III:4, measures affecting internal sale, offering for sale, purchase, transportation, or distribution must not accord imported products less favorable treatment than like domestic products; discriminatory postal rate regimes can fall within Article III:4.
- Article III:8(b) permits subsidies paid exclusively to domestic producers; qualifying subsidies are carved out from Article III’s non-discrimination disciplines.
- Cultural-policy objectives do not, by themselves, excuse noncompliance with GATT national-treatment and quantitative-restriction rules absent an applicable textual exception.

## Conclusion

The Appellate Body confirmed that Canada’s split-run excise tax and discriminatory commercial postal rates breached GATT 1994 national treatment rules, while the funded postal rate program qualified as a permitted domestic-producer subsidy under Article III:8(b), leaving Canada obligated to bring the inconsistent measures into conformity.


Canada—Certain Measures Concerning Periodicals, WT/DS31/AB/R (WTO App. Body June 30, 1997)