CANADA TRADE POLICY REVIEW SUMMARY - 2000

PRESS RELEASE

PRESS/TPRB/151

15 December 2000

Canada: December 2000

Canada's trade and investment regime is

amongst the world's most transparent and liberal

notwithstanding persistent barriers in a few

important areas, says a new WTO report on the

trade policies of Canada. Reaping the fruits of a

generally outward looking environment, both

trade and investment flows have continued to

expand rapidly since Canada's previous Trade

Policy Review in 1998. Barriers persist in certain

agri-food industries, textiles and clothing, and

some services activities, notes the report.

Canada is reaping the fruits of a liberal

trade regime while barriers remain in some

key areas back to top

Sound economic policies have allowed Canada to enjoy its

ninth consecutive year of economic growth, achieve an

improved fiscal balance, reduce unemployment, and

increase real after-tax incomes. Canada's liberal trade

regime has played an important role in these

achievements, highlighting the benefits of trade for

specialization, resource allocation and, ultimately, living

standards.

The new WTO Secretariat report, along with policy

statements by the Canadian government, will serve as a

basis for the trade policy review of Canada by the Trade

Policy Review Body of the WTO on 13 and 15 December.

The report says that Canada participates fully in the work

of the WTO, including through information sharing, support

for trade facilitation initiatives, and active efforts to

increase transparency. Canada is active in the ongoing

negotiations in agriculture and services. In agriculture, it

seeks on the one hand improved market access, export

subsidy elimination, and reduced trade-distorting domestic

support, while on the other it wishes to preserve its right

to operate "orderly marketing systems" in the wheat,

dairy, poultry and egg sectors. In services, Canada seeks

to strengthen multilateral rules and improve market

access, while ensuring that its public health and

education systems are not jeopardized, and that new

obligations do not run counter to its cultural policy

objectives, the report also says.

Under the WTO dispute settlement mechanism, Canada

has been involved as a complainant in various cases

seeking to preserve market access for its exports (e.g.,

aircraft, asbestos, beef, and salmon). Concurrently, a

number of long-established Canadian sectoral support

programmes have been challenged under multilateral rules,

including those for dairy exports, aircraft, motor vehicles,

generic drugs, and magazines.

Canada has continued to build up its already extensive

network of preferential arrangements. These have helped

open the Canadian market. Such arrangements, however,

may also distort trade and investment patterns as they

involve different margins of preference and rules of origin.

Since 1998, Canada has engaged in negotiations for new

FTAs with Costa Rica, EFTA, and is exploring such

negotiations with Singapore. Notwithstanding these

efforts, the privileged relationship with the United States

is likely to remain paramount for Canada for years to

come. The relationship has served well Canada's economic

interests, but also magnified its exposure to the U.S.

market, which now receives some 86% of Canadian

merchandise exports.

Overall Canada's market access in services is relatively

liberal and has been further enhanced since 1998. Thus, in

financial services, steps have been taken to improve

foreign access, while in the telecommunications industry

certain domestic ownership requirements and monopolies

have been abolished. Some restrictions have come under

close domestic scrutiny: in air transport, competition

policy concerns led the competition authority to question

existing barriers to foreign participation; in the cultural

sectors, new instruments are being sought to promote

Canadian culture in the face of an increasingly rigorous

application of multilateral disciplines.

The WTO report stresses that for goods, tariffs are the

main trade instrument. The tariff regime offers duty-free

entry to over 90% of imports, either under MFN or

preferential rules, resulting in a trade weighted average

tariff of only some 0.9%. By contrast, the simple MFN

average tariff stands at 7.1%, while the average on

dutiable items is some 13% due to the higher tariff applied

to a number of sensitive products; these include

vegetables, cut flowers, sugar, wines, textiles, clothing,

footwear, and ships, many of which are of export interest

to developing countries. In this respect, and despite

changes to the tariff regime for least developed countries

since 1998, Canada's autonomous tariff concessions in

favour of developing countries remain modest compared

with preferences established under reciprocal free-trade

agreements (FTAs). Extending such preferences on a MFN

basis would both enhance welfare in Canada itself and

improve market access to developing and other partners.

Canadian producers have continued to seek protection

against imports through anti-dumping (AD) actions; 85

definitive AD duties were in force in mid-2000 making

Canada one of the most intensive AD users. Exports from

some 35 partners are affected, 58% of which cover steel

products. About 16% of AD measures have been in place

for ten years or more.

The report points out that a number of quantitative

restrictions are maintained to protect domestic producers

against foreign competition. Canada has taken unilateral

liberalizing steps in textiles and clothing but import quotas

impose significant restrictions to certain products, some

of great interest to developing countries. Tariff on

products subject to tariff quotas (TQs) ranging to over

300% in the dairy and poultry industries continue to

amount to de facto quantitative restrictions. By shielding

those industries from market opening, TQs are

perpetuating inefficiencies at the cost of Canadian

consumers, and denying trade opportunities to more

efficient foreign producers.

Market distortions may arise from local-content

requirements in place at federal or provincial level, says

the report. The first apply in the "cultural" subsectors and

under the Auto Pact; recent WTO panels found that in

both cases certain schemes were inconsistent with

multilateral rules. Provincial local-content requirements

apply to wine production, and wood and mineral

processing. In three provinces, local wines benefit from

less restrictive marketing conditions than foreign

products.

Financial support is made available to selected activities,

with effects on production and, potentially, trade and

investment. Some 40% of total financial transfers to the

economy goes to the agri-food sector, mainly in the form

of income risk management programmes. Reversing earlier

trends, assistance to that sector has increased

substantially since 1998. Although Canadian assistance to

agriculture remains minor relative to other large

agricultural exporters, it can but compound the problem of

subsidies and market distortions affecting world markets.

Federal financial transfers to non-agricultural sectors

include grants and direct investment schemes, one of

which was found by a panel to provided WTO-inconsistent

subsidies to the regional aircraft industry.

Notes to Editors

Trade Policy Reviews are an exercise, mandated in the

WTO agreements, in which member countries' trade and

related policies are examined and evaluated at regular

intervals. Significant developments which may have an

impact on the global trading system are also monitored.

For each review, two documents are prepared: a policy

statement by the government of the member under

review, and a detailed report written independently by the

WTO Secretariat. These two documents are then

discussed by the WTO's full membership in the Trade

Policy Review Body (TPRB). These documents and the

proceedings of the TPRB's meetings are published shortly

afterwards. Since 1995, when the WTO came into force,

services and trade-related aspects of intellectual property

rights have also been covered.

For this review, the WTO's Secretariat report, together

with policy statements prepared by the Government of

Canada, will be discussed by the Trade Policy Review

Body on 13 and 15 of December 2000. The Secretariat

report covers the development of all aspects of Canada

trade policies, including domestic laws and regulations,

the institutional framework, trade policies by measure and

by sector.

Attached to this press release is a summary of the

observations in the Secretariat report and parts of the

governments policy statements. The Secretariat report

and the governments' policy statements are available for

the press in the newsroom of the WTO internet site

(www.wto.org). These three documents and the minutes

of the TPRB's discussion and the Chairman's summing up,

will be published in hardback in due course and will be

available from the Secretariat, Centre William Rappard,

154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been

completed: Argentina (1992 and 1999), Australia (1989, 1994 and

1998), Austria (1992), Bahrain (2000) Bangladesh (1992 and 2000),

Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil

(1992, 1996 and 2000), Burkina Faso (1998), Cameroon (1995),

Canada (1990, 1992, 1994, 1996 and 1998), Chile (1991 and 1997),

Colombia (1990 and 1996), Costa Rica (1995), C?te d'Ivoire (1995),

Cyprus (1997), the Czech Republic (1996), the Dominican Republic

(1996), Egypt (1992 and 1999), El Salvador (1996), the European

Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997),

Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990,

1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and

2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998),

Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992,

1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of

(1992, 1996 and 2000), Lesotho (1998), Macau (1994), Malaysia

(1993 and 1997), Mali (1998), Mauritius (1995), Mexico (1993 and

1997), Morocco (1989 and 1996), New Zealand (1990 and 1996),

Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway

(1991, 1996 and 2000), Pakistan (1995), Papua New Guinea (1999),

Paraguay (1997), Peru (1994 and 2000), the Philippines (1993),

Poland (1993), Romania (1992 and 1999), Senegal (1994),

Singapore (1992, 1996 and 2000), Slovak Republic (1995), the

Solomon Islands (1998), South Africa (1993 and 1998), Sri

Lanka(1995), Swaziland (1998), Sweden (1990 and 1994),

Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein),

Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999),

Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and

1998), the United States (1989, 1992, 1994, 1996 and 1999),

Uganda (1995), Uruguay (1992 and 1998), Venezuela (1996),

Zambia (1996) and Zimbabwe (1994).

Government report back to top

TRADE POLICY REVIEW BODY: CANADA

Report by the Government

Trade and economic policy environment

(i) Strong economic fundamentals

1. Canada marked its eighth consecutive year of economic

growth in 1999 with strong growth continuing through this

year. Domestic demand, investment, and trade continued

to support Canada's solid performance, with real growth in

Gross Domestic Product (GDP) accelerating from 3.3% in

1998 to 4.5% in 1999. Consumer price inflation remained

low at 1.7% and the unemployment rate dropped to 6.8%

in September 2000, close to the 24-year low of 6.6%

recorded in May and June of this year. Job growth

reached 3% with 427,000 net new jobs created in 1999.

2. The federal government recorded a surplus of Can$12.3

billion for fiscal year 1999-2000, boosted by stronger

economic growth and spending restraint. This was the

third straight surplus, a situation not seen since the early

1950s. The Government has now reduced the public debt

by Can$19 billion, freeing more than Can$1 billion a year

to support program spending and lower taxes. The net

federal debt has fallen to Can$565 billion for 1999-2000.

The debt-to-GDP ratio also declined 12 percentage points

from the peak in 1995-96, to 58.9% in 1999-2000.

3. Improvement at the provincial-territorial level accompanied fiscal progress at the federal level. The provincial-territorial sector had an estimated surplus of Can$2.4 billion in 1999-2000, the first aggregate surplus in at least 30 years.

(ii) International trade sustains economic growth

4. International trade has played a significant role in

sustaining Canada's economic growth. As of the second

quarter of 2000, Canada's exports of goods and services

represent about 45% of GDP, a substantially higher

proportion than that of our major trading partners. This

share is up from 43% in 1999 and just 28% a decade ago.

Trade accounts for one in three new jobs in Canada.

5. Resources now represent about 35% of our exports

compared to 60% 20 years ago. Most of our exports are

now high value-added goods and services

telecommunications, aerospace, software, environmental

technologies, and other areas of the "new economy". The

automotive sector is Canada's leading export sector,

followed by machinery and equipment, including new

technology products. With regard to trade in services, the

strongest growth occurred in knowledge-based

commercial services. Exports of goods and services

increased by 11.3% in 1999 and imports increased by

7.4%. Import growth was driven by investment demand

for machinery and equipment and oil price increases. As a

net energy exporter, however, Canada gained from the

sharp rebound of international oil prices.

6. The continued higher rate of growth of exports over

imports reflects the new opportunities created by

technological advances, the health of the U.S. economy,

NAFTA, and the reduction of trade barriers following the

conclusion of the Uruguay Round of trade negotiations.

(iii) Outward investment exceeds inward investment

7. Foreign direct investment (FDI) rose by almost 10% in

1999 to reach a total of Can$240 billion or 25% of GDP.

Canadian direct investment abroad (CDIA) reached

Can$257 billion, confirming Canada's status as a major

global investor. Finance and insurance accounted for the

largest share of CDIA and FDI stocks.