1. This section reviews developments in Canadian international trade and investment policies during 1997, including selective aspects of: (i) matters related to the World Trade Organization (WTO); (ii) developments in regional trading arrangements; (iii) developments in Canadian trade policies; (iv) developments in foreign investment policies and the Multilateral Agreement on Investment (MAI); and (v) other issues.2

Abstract

1. This section reviews developments in Canadian international trade and investment policies during 1997, including selective aspects of: (i) matters related to the World Trade Organization (WTO); (ii) developments in regional trading arrangements; (iii) developments in Canadian trade policies; (iv) developments in foreign investment policies and the Multilateral Agreement on Investment (MAI); and (v) other issues.2

VIII. Developments in Canadian Trade Policy1

A. Introduction

1. This section reviews developments in Canadian international trade and investment policies during 1997, including selective aspects of: (i) matters related to the World Trade Organization (WTO); (ii) developments in regional trading arrangements; (iii) developments in Canadian trade policies; (iv) developments in foreign investment policies and the Multilateral Agreement on Investment (MAI); and (v) other issues.2

B. World Trade Organization

Implementation of the Uruguay Round

2. Canada continued to implement its Uruguay Round commitments during 1997. In textiles and clothing, it submitted to the WTO the list of products to be liberalized during the second stage of the Agreement on Textiles and Clothing (ATC),3 As of January 1, 1998, “liberalized” imports account for about 34 percent of 1990 imports of textiles and clothing products. Although only about a third of these previously were subject to restrictions, Canada is the only large industrial country that has included some restricted items in its liberalization lists so far.4 Canada has not used any special safeguards provided by the agreement. Average tariffs on textiles and clothing products (simple MFN rates) are relatively high at 17 percent.

3. In agriculture, high tariffs continue to be applied to imports of supply-managed products (dairy, eggs, poultry).5 Such imports enter under a tariff-quota system established in the Uruguay Round. Canada’s aggregate level of support (subsidies and market price support) is below what is required by the Round, but support levels are high.6

4. State trading enterprises are active in trade in wheat and barley (exclusive rights on exports and domestic sales of grain for human consumption in certain areas), dairy (exclusive import rights on butter), fish (exclusive intraprovincial trade and export rights for fish and fish products from freshwater commercial fisheries from certain provinces and territories)7, provincial liquor boards, and dry beans in one province. The role and practices of the state trading enterprises have been subject to internal debate in Canada and to some criticism by Canada’s trading partners. Legislation to modernize the governance of the Canadian Wheat Board is currently pending in Parliament.

Sectoral Negotiations

5. In telecommunications, Canada made new liberalization commitments in the WTO negotiations that were concluded in February 1997. In the past several years, some deregulation has taken place in this sector in Canada, and these actions were incorporated in Canada’s international bindings as part of the telecommunications agreement. In addition, the WTO bindings contain planned liberalization through the year 2000.8 The sector in Canada has a two-tier structure: basic services9 and “enhanced” services.10 Basic telecommunication services are subject to restrictions on foreign access and ownership.11 Enhanced services are relatively free from restrictions, including foreign ownership limits. In some services, provincial regulations pose additional restrictions (for example, by limiting local wireless telephone services). A number of “cultural industries” were excluded from the liberalization commitments (for example, broadcasting).

6. Canada has been an active participant in the WTO negotiations on financial services, which were concluded in December 1997.12 Gradual opening of the sector to foreign competition has continued, and actions in this area have been bound in the WTO. Recently, Canada offered to consolidate in the WTO by mid-1999 its partial opening to branches of foreign banks13.

7. Canada participated in the Information Technology Agreement that aims at the phased elimination of tariffs over the period July 1997–2000 on five categories of products: computers, software, telecommunications products, semiconductors, and scientific instruments, Canada has also continued to implement the WTO’s Government Procurement Agreement, but has not extended its coverage to provinces.

Dispute Settlement Activity in the WTO

8. During 1997, Canada was directly involved in a number of WTO dispute cases: one case brought against Canada was resolved at the Appellate Body; two cases brought by Canada are at the panel stage; and three others, two brought against Canada and one brought by Canada, are at the consultation stage. Canada is also a third party in another eight cases. The authorities have been very satisfied with WTO’s dispute settlement activity and see it as having led to increased predictability of the multilateral trade rules.

9. In “Certain Measures Concerning Periodicals,” the WTO Dispute Panel ruled against Canada in a complaint by the United States, and most of the panel’s ruling was upheld on appeal. The ruling challenged the 80 percent excise tax on the advertising revenues of split-run editions of foreign magazines as a discriminatory restriction on foreign magazines. A Canadian subsidy to postal rates for Canadian periodicals was also deemed WTO inconsistent violating the national treatment principle, and the existing ban on imports of some periodicals was also confirmed as against WTO rules. On September 15, 1997, Canada and the United States agreed to implement the ruling within 15 months of its adoption on July 30, 1997.

10. The panel on “Measures Affecting Livestock and Meat” against the European Union (EU) ruled in Canada’s favor in August 1997. The Panel found (as in a similar case brought to the WTO by the United States) that EU measures restricting or prohibiting imports of meat treated with growth hormones are inconsistent with WTO rules as they have no scientific basis. The EU has appealed the case. Another panel on “Measures Affecting the Importation of Salmon” brought by Canada against an Australian prohibition on imports of trout and salmon on the basis that imports could introduce disease was established in April 1997, and the panel is still deliberating, Canadian salmon has been denied entry in Australia since 1975, and Canada considers that the practice is against WTO rules on import restrictions and sanitary rules.

11. Consultations are underway in three cases: Canada’s complaint against Brazil’s “Export Financing Programme for Aircraft” filed in June 1996, in which Canada considers that interest equalization payments under Brazil’s export financing program would amount to export subsidies; Brazil’s complaint against Canada’s “Measures Affecting the Export of Civilian Aircraft” filed in March 1997 in which Brazil claims that Canadian policies result in subsidies for aircraft exports; and the U. S. complaint of October 1997 regarding pricing practices in Canada’s dairy industry which allegedly results in subsized exports of dairy products, and on the implementation of the tariff quota on fluid milk.

Antidumping and Countervailing Duty Investigations

12. In recent years the number of antidumping investigations in Canada has declined. In 1997, Canada initiated three antidumping investigations involving baby food from the United States, hot-rolled carbon steel plates from China, Mexico, Russia, and South Africa, and stainless steel round bar from Germany, France, Italy, Japan, Spain, Sweden, Taiwan Republic of China, and the United Kingdom. Four injury findings were issued in 1997 resulting in the imposition of final antidumping measures,14 and in one case (dry pasta from Italy) no injury was found. No countervailing duty investigations were initiated during 1997, and one pending case (dry pasta from Italy) was terminated for lack of injury. At the end of 1997, Canada had antidumping duties in force on 30 products and countervailing duties on 4 products, which covered an estimated ½ percent of imports.

C. Regional Trading Arrangements

North American Free Trade Agreement (NAFTA)

13. Canada continues to be satisfied with the implementation of NAFTA15 Canada supports NAFTA enlargement, but has not received applications from other candidates. A bilateral agreement with Chile entered into force on July 5, 1997.16 Canada continues to pusue trade liberalizing agreements with other countries in the region, and is actively working to achieve a trade and investment arrangement with Mercosur.

14. Two disputes involving trade between Canada and the United States were resolved by negotiations outside the formal NAFTA dispute settlement system in 1997. In August 1997, Canada and the United States concluded an agreement, whereby the United States will provide Canada with guaranteed access for Canadian sugar exports.17 Canada had challenged the U.S. Re-Export Program for Sugar-Containing Products, which was supposed to have been eliminated under NAFTA in 1996. In the area of cultural industries, a dispute concerning the elimination of a license for a U.S. country music TV channel was resolved through commercial negotiations. In addition, consultations are currently being held on a U.S. proposal requiring visas for the temporary entry of Canadian citizens into the United States.

15. There were no new formal NAFTA dispute cases involving Canada in 1997 under Chapter 20 of NAFTA.18 On December 2, 1996, a NAFTA Panel ruled in Canada’s favor on a U.S. challenge of Canadian tariffs on imports of certain U.S. agricultural products (dairy, poultry, eggs, barley and barley products, and margarine). In its ruling, the panel agreed that provision in the Canada-U.S. Free Trade Agreement allowed Canada to maintain quantitative import restrictions against certain U.S. imports. It also concluded that Canada was not obligated to end these restrictions under the WTO Agreement and that Canada had the right to convert these into tariff equivalents under the WTO and the NAFTA.

16. Consultations initiated by Canada and Mexico on the Cuban Liberty and Democratic Solidarity Act, enacted by the United States in March 1996, are ongoing. At present, the right of U.S. citizens to sue in U.S. courts regarding claims on confiscated property in Cuba under Title III of the act has been suspended by Presidential order. However, potential liabilities for Canadian companies continue to accrue, and a number of Canadian companies and their personnel have received letters under Title IV of the act advising them that they may be barred from entry into the United States. To protect Canadian interests, Canada implemented an amendment to the Foreign Extraterritorial Measures Act on January 1, 1997 that will block any attempts to enforce judgements under the U.S. act in Canadian courts, and allows Canadian companies to sue in Canadian courts to recover any compensation damages awarded against them by U.S. courts.

17. The review mechanism for national antidumping and countervailing duty actions under Chapter 19 of the NAFTA currently has four active reviews of actions involving Canada. One panel is reviewing an injury determination made by Canada in a case involving the dumping of concrete panels in Canada by US, firms. Others concern a Canadian challenge to U.S. antidumping duties imposed on Canadian steel products and Mexican antidumping duties on Canadian rolled steel plate and hot-rolled steel sheets. During 1997, one panel review was terminated concerning a Canadian dumping determination on U.S. exports of sugar.

Other Arrangements

18. Canada continues to be an active supporter of the Free Trade Area of the Americas (FTAA). It is expected that formal negotiations of the FTAA will be launched after the Leaders Summit in Santiago in April 1998, with the objective of concluding the negotiations by December 2003 and beginning the implementation of the agreement in January 2005. Canada favors a comprehensive agreement following the NAFTA model that would include investment and services.

19. Canada has been an active participant in the Asia-Pacific Economic Cooperation Forum (APEC) as a mechanism for consensus building on trade and investment liberalization. During 1997, Canada was APEC’s chair and hosted its fifth Annual Summit in Vancouver in November 24–25, 1997. Canada’s aim of advancing sectoral liberalization targets by two years was achieved and the Summit agreed to initiate further liberalization in nine sectors with implementation starting in 1999.19 The Summit also reviewed implementation of various Action Plans after the first year of their implementation, and welcomed revisions to these plans. Canada’s action plan is a comprehensive document listing recent and future planned liberalization in goods and services including policies related to investment, intellectual property and the regulatory framework, largely in line with Canada’s existing commitments under the WTO and other regional trade agreements.

20. A free trade agreement with Israel entered into force on January 1, 1997. The agreement removes barriers to trade in goods (with limited exemptions mainly in the area of agricultural products) effective as of the implementation of the agreement. Only one product on each side (women’s swimwear in the case of Canada and denim in the case of Israel) is subject to a 2½-year transition period. Negotiations on including investment continue and those on further inclusion of agricultural products will start by January 1, 1999. The agreement also covers goods originating from the West Bank and the Gaza Strip. During 1997, Canada also started consultations with the countries of the European Free Trade Association to deepen trade relations.

D. Canadian Trade Policies

21. A comprehensive tariff reform entered into force on January 1, 1998. Its main aim is to increase transparency and reduce costs to industry by streamlining and simplifying customs treatment. The main provisions of the reform advance final Uruguay Round tariff cuts scheduled for 1999 by one year, eliminate “nuisance” tariff rates (those less than 2 percent), and reduce the number of tariff lines from 11,000 to 8,000 and tariff columns from 5 to 2.20 The simplification exercise combined with Uruguay Round cuts in tariff rates will reduce Canada’s average ad valorem MFN tariff from 5.8 percent in 1997 to 4.7 percent in 1998, The number of specific tariff rates will decline from 6 percent to 4 percent of total tariff lines.

22. During 1996, sub-committees of the House of Commons reviewed Canada’s antidumping and countervailing duty law, the Special Import Measures Act (SIMA), and in December 1996, released the final report. Generally, the report found that, “… SIMA is working well and continues to be relevant to the competitive needs of the Canadian business community,” and made a number of recommendations to improve SIMA’s operation. The government tabled its response to the Parliamentary Report in the House of Commons on April 18, 1997 and indicated it would take steps to implement specific recommendations, including the drafting of any necessary legislative amendments. The changes proposed include: (i) assigning responsibility for the preliminary injury investigation to the Canadian International Trade Tribunal (with Revenue Canada retaining responsibility preliminary investigation of dumping and subsidies); (ii) facilitating the participation of expert witnesses in proceedings; and (iii) strengthening and clarifying the public interest mechanisms, including the possibility of lesser duty recommendations.

E. Foreign Investment

23. Canada has been an active participant in the OECD negotiations on a Multilateral Agreement on Investment (MAI) and in setting the stage for investment discussions in the WTO. The current deadline for the conclusion of the MAI negotiations is the end-April 1998. Canada’s objective is to achieve NAFTA-style investment provisions. In the WTO, Canada’s objective is to finish the background work to prepare for multilateral negotiations. Pending the negotiations, Canada continues to conclude bilateral investment agreements with various countries. Thus far, agreements have been concluded with 24 countries and negotiations are ongoing with several others. These agreements contain provisions on issues such as national treatment, transparency, post-establishment (including expropriation), and transfer of funds.

F. Trade Preferences for Developing Countries

24. Canada offers preferential access to its market for over 180 countries under the General Preferential Tariff (GPT). Access conditions were reviewed after the Uruguay Round (see SM/97/3 for details). Following the review of the system in 1995, GPT imports increased by 26 percent in 1996. The benefits are heavily concentrated with ten countries accounting for 86 percent of all preferential imports in 1996.21 Preferences apply to only 5 percent of the dutiable imports from the least-developed countries.

1

Prepared by Piritta Sorsa.

2

Developments after January 15, 1998 are not reflected in the paper.

3

The ATC requires WTO members to remove quotas on imports of textiles and clothing in four stages by 2005. The second stage was implemented on January 1, 1998. The liberalization does not include reductions in tariffs.

4

The liberalized products were work gloves and liners, certain shirts, specialty yarns, and handbags of made-up textiles.

5

Tariff rates on these products averaged 205 percent in 1995, and the average rate is expected to decline to 174 percent by 2000.

6

The producer subsidy equivalent in Canada was 27 percent for all agricultural products in 1995, but it was much higher for the supply-managed products, with subsidy equivalents amounting to 62 percent for milk and 44 percent for eggs (OECD 1996, Agricultural Policies, Markets and Trade in OECD Countries, Monitoring and Evaluation).

7

Canadian Wheat Board, the Canadian Dairy Commission, and the Canadian Freshwater Fish Marketing Corporation.

8

Future liberalization includes termination of Teleglobe Canada’s monopoly on overseas voice services in October 1998 and Telesat Canada’s monopoly on satellite services by March 2000.

9

Includes domestic telephone, long-distance voice, and overseas services.

10

Includes domestic long-distance business phone services, private voice-mail, and cellular phones.

11

For example, foreign ownership of basic carriers is limited to 47 percent of equity, and basic carriers are required to be controlled by Canadians.

12

The financial sector has been gradually liberalized in Canada since 1982. Restrictions on foreign banking were relaxed in the NAFTA, and many of these actions were subsequently extended to WTO members during the Uruguay Round and negotiations on financial services.

13

Apart from some provinces (Ontario, Quebec, and Manitoba), there are no specific restrictions on foreign ownership of banks as such. Branching of foreign banks was not previously allowed, and the opening of new branches by established banks has been subject to Ministerial approval.

14

An antidumping duty as high as 72 percent was imposed on garlic from China; an antidumping duty as high as 41 percent was imposed on imports of polyiso-insulation boards from the United States; and an antidumping duty as high as 43 percent was imposed on imports of concrete panels from the United States.

15

Under the Canada-U.S. FTA (incorporated into the NAFTA), most tariffs were eliminated on Canada-U.S. trade by January 1, 1998, and will be eliminated on Canada-Mexico trade by January 1, 2003.

16

For details see SM/97/3 Canada—Selected Issues.

17

A minimum of 10,300 tons of refined sugar and 59,250 tons of sugar-containing products.

18

Chapter 20 covers trade disputes over the interpretation or application of the free trade agreement.

19

The sectors covering an estimated US$500 billion in world trade are environmental goods/services, medical equipment/instruments, chemicals, energy goods/services, telecommunications equipment, forest products, fish and fish products, toys, gems, and jewelry.

20

The other changes include: (i) confirmation of earlier reductions in duties on imports of 1,500 items; (ii) elimination of “not made in Canada” conditions in tariff provisions covering about $1 billion in imports; (iii) elimination of concessionary tariff codes or their conversion to tariffs (reduced rates for specified uses) covering about 2,000 codes (most of these imports become duty-free in 1998 under NAFTA) and conversion of some of them to regular items under the same concessionary rates; (iv) replacement of the machinery remission program (duty remittals on machinery not available in Canada) with dutiable and duty-free tariff items and a three-year transition program for dutiable items (duties eliminated if not available in Canada during the transition period); (v) conversion of specific rates of duty to percentages (specific rates remain on alcoholic beverages, certain agricultural products, and wool fabrics); and (vi) elimination of tariff regulations or their conversion to tariffs (300 duty remissions eliminated, but 150 regulations retained).

21

China, Korea, Thailand, Brazil, Malaysia, Indonesia, India, Hong Kong, Philippines, and Chile, in declining order of the value of Canadian imports.