10 December 1998
trade initiatives enhance overall openness but little progress made in sensitive sectors.
Concerns also remain over complicated trade relations and dependency on a single export
market. Back to top
Regional and multilateral trade
initiatives have helped Canada to further liberalize its generally open economy. A new WTO
Secretariat report on Canada's trade policies and practices notes that efforts to enhance
transparency, establish a more rationale import regime and lower inter-provincial trade
barriers are helping producers to adapt to the challenges, and take advantage of greater
market openness in Canada and abroad. However, areas such as agriculture, textiles and
clothing, motor vehicles and certain services have proved impervious to change. Moreover,
Canada's preferential arrangements give rise to questions about their possible distortion
of trade patterns.
The Secretariat's report and a policy
statement by the government of Canada will be the subject of two days of discussion at the
WTO's Trade Policy Review Body on 15 and 17 December 1998.
The WTO's latest report on Canada's
trade policies since 1996 notes that trade is a major determinant of Canada's economic
performance and that exports continued to benefit from the United States' cyclical lead
and from Canada's participation in the North American Free Trade Agreement (NAFTA). The
U.S. share in Canadian trade has risen further and now represents 83% of merchandise
exports and 67% of imports. Canada has also forged preferential links with other partners,
including new free trade areas with Israel and Chile.
The report notes that Canada's new
customs tariff, in effect since 1 January 1998, greatly simplified and rationalized its
import regime. Almost half of all tariff lines are now duty free, up from a third in 1996.
The simple average tariff is down to 7.7% in 1998, compared to 9.2% in 1996. Nevertheless,
tariff protection remains significant for food products, textiles, clothing and footwear,
all areas where developing countries could well have a comparative advantage. The report
also says that Canada's elaborate system of preferential tariffs and rules of origin raise
concerns about trade diversion.
The report notes that financial support
for agriculture has continued to contract, including the elimination of export subsidies
in 1997 and reductions in domestic agricultural subsidies. However, an increasingly
market-based environment for grains and some major livestock products contrasts with the
retention of supply management regimes for dairy products, poultry and eggs. Canada's
in-quota access is in some instances reserved for imports from preferential trading
partners. Tariffs on out-of-quota supplies are often over 200%.
Canada's trade in textiles and clothing
has been further liberalized, in some instances beyond WTO commitments. In recent years,
Canada's textile imports from China and Hong Kong, China have increased significantly,
while China is already the largest clothing exporter to Canada. Trade in these products
has also been liberalized under preferential arrangements, including Israel and NAFTA,
with strong growth under the latter due in part to NAFTA rules of origin.
More than half of all anti-dumping
measures apply to steel products, and affect mostly U.S. suppliers. Although this reflects
in part the intensity of bilateral trade, the report identifies anti-dumping as a
persistent impediment to trade in North America and remarks on Canadian efforts to phase
out both anti-dumping and countervailing duties inside NAFTA and in its trade agreement
Import controls are in place
essentially for health, safety and environmental reasons, with the exception of the trade
restrictions applied in the agriculture and textiles and clothing sectors. The report
notes that over the last two years environment-related trade prohibitions were challenged
under the government to government dispute settlement provisions of the Agreement on
Internal Trade and by private companies under the NAFTA.
In regard to government procurement,
the report says that frictions persists between Canada and other signatories of the WTO's
Agreement on Government Procurement as Canada continues to condition its market opening
commitments under the Agreement to moves that it deems economically equivalent by the
Canada's domestic reforms in services
have been facilitated, and been stimulated by commitments made under the WTO's General
Agreement on Trade in Services (GATS) and NAFTA. Canada also actively participated in the
1997 WTO financial and telecommunications services negotiations. With regard to
audiovisual services, the report notes that Canada has yet to find a tenable balance
between its international commitments and its perceived need to promote its cultural
identity in an increasingly borderless market.
The report concludes that Canada's
pursuit of an outward-oriented strategy, combined with prudent macroeconomic policies, has
been integral to its recent strong economic performance. Its multi-track approach to
international trade and investment relations has further opened up Canada's economy, and
resulted in greater competitiveness in many sectors of its economy. However, difficulties
in balancing internal pressures in a federal system, regional integration and multilateral
liberalization continue to complicate Canada's external trade relations. Canada's trading
partners, for example, have questioned Canadian measures in areas such as patent
protection, milk and dairy products pricing, state trading arrangements for dairy and
wheat products, film distribution, taxation of periodicals, export support for aircraft
and the automotive trade regime.
Notes to Editors
The WTO's Secretariat report, together
with a policy statement prepared by Canada, will be discussed by the WTO Trade Policy
Review Body (TPRB) on 15 and 17 December 1998. The WTO's TPRB conducts a collective
evaluation of the full range of trade policies and practices of each WTO member at regular
intervals and monitors significant trends and developments which may have an impact on the
global trading system. The Secretariat report covers the development of all aspects of
each of Canada's trade policies, including domestic laws and regulations, the
institutional framework, trade policies by measure and by sector. Since the WTO came into
force, the new "areas" of services and trade-related aspects of intellectual
property rights are also covered.
To this press release is attached the
summary observations from the Secretariat report and the government report. The full
Secretariat and government reports are available for journalists from the WTO Secretariat
on request (call 41 22 739 5019). They are also available for the press in the newsroom of
the WTO internet site (www.wto.org). The Secretariat report, together with the government
policy statement, a report 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 WTO Secretariat, Centre
William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following
reports have been completed: Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh
(1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Burkina
Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 &
1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), Cyprus
(1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El
Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997),
Finland (1992), Ghana (1992), Hong Kong (1990, 1994 & 1998), Hungary (1991 &
1998), Iceland (1994), India (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel
(1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of
(1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998),
Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990
& 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan
(1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania
(1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon
Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden
(1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Trinidad and
Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992,
1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: CANADA
Report by the Secretariat Summary Observations
Canada has continued to pursue an
outward-oriented strategy that, combined with prudent macroeconomic policies, has been
integral to a recent strong growth performance. Over the last two years, Canada has
participated in regional and multilateral initiatives that have further liberalized its
generally open economy. It has also demonstrated its commitment to a strong multilateral
trading system through an active and constructive participation in all aspects of work in
the WTO. Domestic initiatives to lower inter-provincial trade barriers, move forward
internal deregulation, enhance transparency, and rationalize the import regime have helped
Canadian producers to adapt to the challenges, and to take advantage of the opportunities
resulting from greater market access both at home and abroad. However, a few areas have
proved relatively impervious to change and remain sheltered from foreign competition by
trade or investment barriers; among those are certain activities in the agriculture,
textiles and clothing, motor vehicles and services sectors. Moreover, although
outward-oriented, Canada's preferential arrangements give rise to questions about their
possible distortion of trade patterns.
Canada has consolidated many of the
economic trends noted in its 1996 Trade Policy Review, maintaining output growth and low
inflation while eliminating fiscal deficits. Economic activity has reflected strong
private consumption and investment, supported by prudent monetary management and the
stimuli of regulatory reform, closer internal market integration and pressure from greater
international competition. Reduction and reform of public spending and increased budgetary
revenues from economic growth underpin the improved fiscal situation. However, reflecting
the accumulation of deficits in earlier years, the overall debt to GDP ratio remains at
almost 100%, which leaves the budget vulnerable to interest rate increases or slow-downs
in economic activity. Unemployment, at 8.4%, also remains an issue.
Developments in the past two years have
confirmed trade as a major determinant of Canada's economic performance. Exports continued
to benefit from the United States' cyclical lead, supported by efficiency gains in the
Canadian economy. The U.S. share in Canadian trade has risen further, to some 83% of
merchandise exports and 67% of imports. Canada's aggregate output thus remains exposed to
slower growth in the United States. Although diversification away from commodity exports
has progressed, primary products still account for almost one third of total merchandise
exports, reflecting Canada's generous endowment of natural resources.
The financial crisis in Asia has had so
far a limited impact on Canada's overall economic growth, as only 8% of Canadian exports
are destined for that region. Nevertheless, the crisis has been felt distinctively in
western Canada and, if protracted, could have significant indirect effects on the economy
as a whole. Commodity prices have fallen for a broad range of important Canadian export
products. This, together with volatility in financial markets, has put downward pressure
on the Canadian dollar. The authorities responded by increasing interest rates at various
times in 1997 and the first half of 1998, followed by a reduction in September 1998.
Trade and investment policies have
developed within an essentially unchanged institutional framework characterized by shared
federal-provincial competencies. The federal and provincial authorities have made steady
progress in reducing inter-provincial trade barriers, particularly through the 1995
Agreement on Internal Trade (AIT). Reflecting the key role played by foreign capital, the
authorities have also sought to ease regulations and reduce other factors that may inhibit
foreign investment. In addition, they have continued the process of internal deregulation
while making use of new information and communication technologies, notably the Internet,
to enhance the effectiveness and transparency of government actions. Overall, these
efforts have facilitated factor flows among the provinces, eased distortions in the
incentive system and created a stronger basis for long-term economic expansion.
POLICIES BY INSTRUMENT
After an autonomous tariff review,
Canada adopted a new Customs Tariff in January 1998 that greatly simplified and
rationalized its import regime. The new Customs Tariff incorporated the Uruguay Round
tariff reductions planned for 1999, unified the schedule, and decreased the number of
tariff lines from 11,000 to 8,000. It also converted all rates of under 2% to zero, a
conversion that will be automatic in the future. Duty free entry also replaced special
codes that had provided for the concessionary entry of certain inputs. Almost half of all
tariff lines are now duty free, up from a third in 1996, and the simple average tariff is
down to 7.7% in 1998, compared to 9.2% two years ago.
Tariffs on dutiable items average 14%,
unchanged from 1996; sectors where tariff protection remains significant include food
products, textiles and clothing, footwear and shipbuilding. Tariff escalation also remains
relatively high in certain sectors, including food products, textiles and footwear. These
features create potential impediments to exports into Canada in sectors where developing
countries could well have a comparative advantage. Transparency has been enhanced by the
elimination in the new Tariff of performance-based duty remission programmes and most
end-use tariff concessions, but provisions remain that permit only certain firms to import
motor vehicles duty-free.
Tariff reductions have also occurred in
the context of free-trade agreements (FTAs). In particular, the progressive implementation
of the NAFTA has resulted in the elimination of virtually all tariffs on trade with the
United States, the main exception being supply-managed agricultural products. Two new
FTAs, with Chile and Israel, bring to ten the number of Canada's preferential tariff
regimes, each involving different margins of preference and rules of origin.
restrictions and controls
Import controls are in place
essentially for health, safety and environmental reasons, with the exception of the trade
restrictions applied in the agriculture, and textiles and clothing sectors. Over the last
two years, environment-related trade prohibitions were challenged under the government to
government dispute settlement provisions of the AIT and and by private companies under the
Canada has used countervailing and
safeguard actions sparingly over the past two years, and there has been a reduction in
anti-dumping measures in force. More than half of all anti-dumping measures apply in the
sensitive steel industry. Anti-dumping actions affect mostly U.S. suppliers; although this
partly reflects the intensity of bilateral trade, anti-dumping thus persists as a
potential impediment to trade in North America. Canada has continued to seek the
elimination of anti-dumping and countervailing duty measures within the NAFTA, and in FTAs
in general. These efforts resulted in provisions to phase-out anti-dumping measures in the
Recognizing the important effect of
standards and technical regulations on international trade, Canada has actively
participated in international standardization activities, including the adoption of
international standards, the negotiation of mutual recognition agreements, and efforts to
harmonize Canadian regulations with those of major trading partners. These efforts should
benefit all of Canada's trading partners, in particular those with whom harmonization is
measures affecting production and trade
In 1995-97 there was a significant
decline in the financial assistance by the Federal Government to economic sectors. In
particular, outlays to the agri-food sector have been substantially reduced, while
industry-specific assistance appears now to be largely limited to the cultural sector.
Although the provinces have also participated in the fiscal consolidation process, the
impact of this process on provincial subsidy programmes is not as clear.
Canada made market opening commitments
in government procurement both under the WTO Plurilateral Agreement on Government
Procurement (GPA) and the NAFTA. However, Canada has linked the full implementation of its
GPA commitments to moves that it deems economically equivalent by the United States. This
position, unchanged since the previous Trade Policy Review, has continued to create
frictions with other GPA signatories.
The AIT has sought to remove provincial
procurement preferences, and thus promote a more rational allocation of resources. Since
1997, transparency has been enhanced by the launching of an Internet-based tendering
system and the conclusion of an agreement to extend AIT disciplines to municipalities,
academic and health institutions. These moves may also benefit foreign suppliers,
especially those with a commercial presence in Canada. On the other hand, although the AIT
prohibits buy-provincial and other practices that discriminate against suppliers from
other provinces, its signatories are free to employ buy-Canadian policies where no
international commitments apply. In general, the criteria used by provinces to allocate
procurement contracts remain opaque.
By and large, the Canadian economy is
open and largely free from significant policy-induced distortions. However, some sectors,
for various reasons including historical and political, remain subject to interventions
that have created barriers to trade and investment. Even these sectors, the main focus of
this report, have come under increased scrutiny and in some of them changes are under way.
Public financial support for
agriculture has continued to contract, including the elimination of export subsidies in
1997, and important reductions in domestic agricultural subsidies. However, an
increasingly market-based environment for grains and major livestock contrasts with the
retention of supply management regimes for dairy products, poultry and eggs. Canada's
in-quota access is in some instances reserved for imports covered by certain preferential
arrangements, including Canada's recent FTAs with Chile and Israel. Tariffs on
out-of-quota supplies often stand at over 200%.
WTO Members have questioned the
activities of the Canadian Dairy Commission and Canadian Wheat Board concerning trade in
dairy products and wheat. In addition to these two entities, Canada has notified the
Canadian Freshwater Fish Marketing Corporation, the ten provincial liquor boards and the
Ontario Bean Producers Marketing Board as state-trading enterprises.
Canada's few but highly restrictive
trade measures in agriculture could help to perpetuate some of the distortions in world
markets that Canada sought to remove in the Uruguay Round. These restrictions, by
effectively shielding key agricultural activities from market opening under the WTO
Agreements, also deny opportunities for trade with Canada to more efficient agricultural
producers, particularly those not enjoying preferential access. This approach detracts
from Canada's otherwise strong support for production based on comparative advantage, a
principle that has served Canada well in other areas.
The motor vehicle industry is the
largest manufacturing activity in Canada, and tightly integrated with that of the United
States. A special policy regime has been applied to the industry since the Auto Pact was
signed with the United States in 1965. Thus, while MFN tariffs are currently 6.7% for
light motor vehicles and aftermarket parts, and 0% for automotive original equipment,
firms specifically covered by the Auto Pact and complying with both Canadian value-added
content and production-to-sales requirements may import automotive products duty free from
all sources. After the Government announced in 1998 that it would not further reduce
unilaterally MFN tariffs on automotive products, instead pursuing trade liberalization
through the WTO and regional arrangements, the European Union and Japan requested
consultations with Canada on the WTO consistency of the Canadian automotive regime. For
Canada itself, concerns also arise about the cost of forgoing unilateral, efficiency
enhancing liberalization, with a view to preserving barriers as bargaining elements for
Canada has implemented the product
integration programme for the first two stages envisaged in the WTO Agreement on Textiles
and Clothing, and it has included some restrained products among those integrated. Canada
has also effectively eliminated some quotas and increased access under others as a
unilateral liberalizing effort. Trade in textiles and clothing has also undergone regional
liberalization. Trade within the NAFTA region has increased considerably, due in part to
rules of origin (the "yarn forward rule") designed to ensure that the benefits
of free trade accrue to producers located in NAFTA members. In recent years, Canada's
textile imports from China and Hong Kong, China have also increased significantly; China
already accounts for the largest, and a growing share of clothing imports.
The process of gradual deregulation of
the Canadian services sector has continued, spurred by the need to remain internationally
competitive in the face of rapid technological change and competitive pressures from U.S.
suppliers. Domestic reforms have facilitated, and been stimulated by international
commitments under both GATS and NAFTA, thus ensuring that these reforms also benefit
foreign service providers. Canada actively participated in the WTO-sponsored negotiations
in Basic Telecommunications and Financial Services. In audiovisual services Canada is
still searching for a tenable balance between international commitments and the perceived
need to promote its cultural identity in an increasingly borderless market place. In these
services, as in all other activities related to cultural industries, the Government
reviews all investments by foreigners.
The professional services sector makes
a significant contribution to Canada's commercial services exports. Professional services
are closely regulated in Canada by provincial and territorial bodies; incorporation of
professional service firms falls under provincial or federal authorities. Although
Canada's decentralized regulatory system has created impediments to trade in such
services, including to inter-provincial labour mobility, steps have been taken, notably
under the AIT, for the mutual recognition and reconciliation of occupational standards
across provinces. In international fora, Canada has made significant commitments on
professional services under the GATS, and negotiated mutual recognition agreements at the
bilateral and regional level, notably under the NAFTA.
POLICIES AND TRADING PARTNERS
Canada follows a multi-track policy
approach to international trade and investment relations in which multilateral and
preferential arrangements are intended to play mutually reinforcing roles. An effective
multilateral system with universal membership, encompassing both trade and investment
disciplines, is seen by the authorities as the best means to attract foreign investment to
Canada and provide a secure and fair environment for Canadian firms operating abroad.
Canada has thus been actively participating in all aspects of current work in the WTO,
arguing that the core of such work should be implementing the Marrakesh built-in agenda
and developing the programme agreed in Singapore. For future trade talks, Canada is
considering a "cluster approach" that would group complementary issues for
negotiation, to identify areas where early agreement might be possible.
Given the importance of bilateral trade
flows, Canada also grants paramount importance to managing the relationship with the
United States. Canada-U.S. preferential trade arrangements, more recently through the
NAFTA, have magnified the inherent advantages of geographic proximity and, thus, the
reliance of the Canadian economy on one trading partner. As a counterbalance, in addition
to its solid support of the multilateral trading system, Canada has sought to forge
preferential links with other partners, including the new FTAs with Chile and Israel and
an active participation in broader schemes such as APEC and the Free Trade Area of the
Canada's bilateral and regional
liberalization reflects an outward-oriented strategy, which, has created however, an
elaborated system of preferential tariffs and rules of origin that give rise to concerns
about trade diversion. Moreover, difficulties in balancing internal pressures in a federal
system, regional integration, and multilateral liberalization continue to complicate
Canada's external trade relations, and WTO partners have questioned over the last two
years Canadian measures in areas such as patent protection, milk and dairy products
pricing, film distribution, taxation of periodicals, export support for aircraft and the
automotive trade regime.
Government report Back to top
TRADE POLICY REVIEW BODY: CANADA
Report by the Government
Canada's efforts to expand trade and to
promote new investment have been supported by a strong domestic economy. Its gross
domestic product grew 3.7% in 1997, fuelled by strong domestic demand and a steady trade
performance. The first budget surplus at the federal level in three decades, low
inflation, low interest rates, and rising employment levels have put Canada in a good
position to weather the current turbulence in world financial markets and to continue to
be an active participant in world trade and investment.
- Despite the fact that Canada is a net exporter of
commodities, declining world commodity prices of recent months have had a limited impact
on Canadas economic performance as the share of the commodities sector in total
exports is not as important as it once was. Indeed, the share of resource-based
commodities in total exports has fallen from 60% in 1980 to about 35% today, representing
some 12% of Canadas GDP. This reflects the changing reality of Canadas economy
which is shifting from a commodities-based to a more knowledge-based economy.
- Canadas efforts to further open markets and
strengthen international rules on trade have led to several key developments, including:
Signing multilateral agreements on
basic telecommunications, financial services, and information technology products and
playing an active role in the ITA II and Pharma III tariff negotiations under the
umbrella of the World Trade Organization (WTO);
Eliminating tariffs on most products
between Canada and the United States and implementing another round of tariff
reductions with Mexico on 1 January 1998;
Eliminating tariffs on a broad range of
products under the Canada-Chile Free Trade Agreement;
Moving ahead with trade liberalization
and facilitation efforts within the Asia Pacific Economic Co-operation (APEC) forum and
taking on the role of the first chair of the negotiations aimed at achieving a Free Trade
Area of the Americas (FTAA); and
Launching free-trade negotiations with
countries of the European Free Trade Association (EFTA) as well as continuing work on the
Canada-European Union Transatlantic Action Plan.
- Canada will continue to promote international trade
and investment and to pursue greater access to foreign markets through strengthening and
expanding international trade rules. Among the key priorities:
Canada will continue to work actively
for everything from the implementation of the Uruguay Round agreements by other WTO
members, to participating in the accession negotiations of non-members to the WTO, to
preparing for negotiations on agriculture and services and in other areas. The WTO remains
the cornerstone of Canadian trade policy.
Trade and investment relations with the
United States and the Americas will continue to be a major Canadian priority. Under the
North American Free Trade Agreement (NAFTA), Canada will work towards reducing barriers in
such areas as services, government procurement, and trade remedies. Our active involvement
and leadership of the FTAA negotiations will continue in the months ahead.
Openness to the public in trade and
investment negotiations will be key to Canada's approach in coming years. Canada will
continue to undertake full domestic consultations with interested public and private
sector groups on various trade negotiations and other initiatives and to promote greater
transparency in the work of the WTO and other trade organizations. Greater public
understanding and broader public support is key to effective trade policy.
Trade and Economic Policy Environment
- The Canadian economy enjoyed solid growth in 1997,
led primarily by gains in private consumption and investment. While growth in the first
quarter of 1998 remained very strong, it slowed in the second quarter due to a sharp
slowdown in inventory accumulation. Notwithstanding the financial and economic situation
in Asia, Russia, and elsewhere, Canadian exports and imports have continued to increase,
albeit at a slower rate. Canadas unemployment rate continued its steady decline,
standing at 8.1 per cent in October 1998, its lowest rate in eight years.
- The value of Canadian exports of goods and services
increased from $84 billion in the first quarter of 1997 to $89 billion in the second
quarter of 1998. During the same period, imports rose from $78 billion to $87 billion,
largely in response to strong domestic demand and likely also due to the depreciation of
many Asian currencies While exports to Asia have declined in 1998 with the economic
downturn in the region, imports from Asia have continued to increase. For example, exports
to Thailand and Indonesia dropped by 41% and 44% respectively, (January-June 1998 vs
January-June 1997) while imports increased by 10% and 13%, respectively. The openness of
the Canadian market to imports from Asia is helping to mitigate the decline in the
region's economic activity and will contribute to a restoration of growth in these markets
which are so important to the Canadian and to the world economy.
- Sound economic fundamentals and attractive,
transparent investment policies are leading to increasing amounts of foreign direct
investment. FDI flows for the first half of 1998 exceeded those of all of 1997. Direct
investment flows were largely to and from the US and were concentrated in the finance and
insurance industries. Significantly, Canada has now become a major global investor, with
total direct investment abroad in the past two years, for the first time in Canadian
economic history, exceeding inward FDI. In 1997, total investments abroad reached $194
billion; foreign direct investments in Canada totalled $188 billion.
- Aware of the challenges and opportunities of the
forces of globalization, Canada has placed a high priority in getting its economic house
in order to ensure that Canadians can participate fully in, and benefit from, the global
economy. The difficult steps taken to address the economic and fiscal problems that faced
the country earlier in the decade have established a solid foundation for continued
growth. For the first time since 1969/70, the Government of Canada recorded a surplus
($3.5 billion) which has been applied directly to the debt. The debt-to-GDP ratio fell in
1996/97 and even further in 1997/98. This accomplishment has been mirrored by the
provinces which together have almost eliminated their deficits; the total government
sector deficit in Canada has thus now been entirely erased. Interest rates have been
brought down substantially with the interest rates on long-term government bonds now at
their lowest level in 30 years.
- Despite the current world-wide economic uncertainty,
the fundamentals of the Canadian economy are expected to remain strong - a low inflation
environment, a declining debt-to-GDP ratio, and strong private sector investment. While
growth may be slower than in 1997, there are encouraging signs of continued expansion in
consumer demand and business investment, supported by higher employment, low medium and
long-term interest rates, and a steady trade performance.
Trade Policy Developments 1996-1998
Over the past two years, Canada continued to pursue
policies to improve access to the United States and other foreign markets, and to
promote the improvement and expanded coverage of international rules governing trade and
investment. Since the last Trade Policy Review in 1996, the following major developments
have taken place:
Canada has fully implemented its
Uruguay Round commitments.
Canada participated actively in further
liberalization efforts of the WTO. In 1997, Canada signed the agreement eliminating duties
on information technology products. Canada is also a party to the agreement on basic
telecommunications services and the agreement on financial services; it has also played an
active role in the ITA II and Pharma III tariff negotiations.
With respect to the NAFTA (and the
Canada-US FTA upon which it is based), tariff elimination on most products between Canada
and the United States was completed on schedule on 1 January 1998. The fifth round of
Canada-Mexico tariff reductions took place on the same date. The second round of
"accelerated" tariff reductions under the NAFTA was implemented in August 1998.
In the context of the up-coming 5th anniversary of NAFTA, an operational review of the
NAFTA work program and future priorities was completed in 1998. For Canada, the NAFTA
strengthened the terms of access to the US market by building on the provisions of the
Canada-U.S. FTA. It has also given Canada and Mexico much better reciprocal access into
each other's markets. Canada's bilateral trade with the United States has more than
doubled since the FTA came into force in 1989, reaching $429 billion in 1997, and trade
with Mexico has grown by 80% since the implementation of the NAFTA, reaching
$8.3 billion in 1997.
Canada was chosen to chair the FTAA
negotiations process for the first 18 months. Initial meetings have been held by the nine
negotiating groups and the three additional bodies addressing horizontal issues:
electronic commerce, smaller economics, and the participation of civil society.
The Canada-Chile Free Trade Agreement
(CCFTA) and its two parallel agreements on environmental and labour cooperation entered
into force in July 1997. Tariffs were eliminated immediately on a broad range of products
and the majority of the remaining tariffs on industrial and resource-based goods will be
phased out within five years.
In 1997, when Canada hosted the APEC
Leaders' Meeting, agreement was reached to move forward on early voluntary sectoral
liberalization (EVSL) initiatives in fifteen sectors. Work continues in APEC to realize
agreements in nine priority sectors which could provide impetus to broader participation
through the WTO.
Work continues on the Canada-EU
Transatlantic Action Plan. Agreements on customs cooperation and humane trapping standards
were signed in 1997. Canada has suggested that Europe's negotiations with Canada, Mexico
and the US would benefit from convergence.
Canada has begun negotiations with EFTA
on a free trade agreement.
Canada implemented its Tariff
Simplification Initiative on 1 January 1998. This has made an important contribution to
increasing the transparency and administrative efficiency of the Canadian import regime.
It unilaterally reduced or eliminated a broad range of tariffs, rounded most rates,
eliminated rates of less than 2%, harmonized certain rates, and amalgamated tariff items.
Canada also completed its review of the Special Import Measures Act. In March 1998, Canada
introduced a bill, which is before Parliament, that proposes adjustments to the system,
largely of a procedural nature, and improvements to further enhance transparency.
Future Policy Directions
Canada's economy is trade-dependent and increasingly
globally integrated. Forty percent of Canada's GDP depends on trade, one out of three jobs
is tied directly to trade, and every $1 billion in foreign direct investment has been
estimated to create as many as 45,000 jobs in Canada. Expanding international trade and
investment is a vital element of the government's strategy to promote jobs, growth and
prosperity. Trade agreements are instruments utilized by Canada for advancing its trade
and economic interests, namely, the pursuit of economic growth and jobs that result from
exports and outward investment opportunities, and increased efficiency due to inward
investment and technology flows and the stimulus of increased import competition. As a
large trader with a relatively small economy, Canada benefits from a trade regime based on
rules rather than on power.
Looking ahead, Canada will continue to pursue its
complementary strategy of trade promotion and trade policy. Key thrusts will include
opening markets further and promoting Canadian business within new and expanded markets.
Canada will continue to promote a rules-based open international trading system, based on
the application of transparent, predictable, and enforceable multilateral trade rules. At
the same time, Canada will continue to pursue further reduction of traditional barriers to
trade industrial tariffs, quotas, and import restrictions and the
elimination of unwarranted non-tariff barriers. We will remain active in the ongoing work
in the TRIPs Council and in the working groups deliberating on trade and competition, on
trade and investment, and on transparency in government procurement. Canada will also work
to develop further a transparent and strengthened dispute settlement regime.
Canada will continue to emphasize the importance of
full implementation of the Uruguay Round agreements by other WTO Members. It supports the
use of technical assistance to enable developing and least-developed countries to build
the capacity to meet their obligations and benefit from participating in the rules-based
system. Canada considers it particularly important to implement market access commitments
undertaken at the High Level Meeting on Least Developed Countries held in October 1997.
Canada will also be working to make the WTO more universal by actively working to
facilitate the accession of major traders such as the People's Republic of China, the
Russian Federation, and other economies in transition.
Recent discussions in the WTO about a new set of
comprehensive trade negotiations present more opportunities to expand and strengthen the
rules-based system. Canada believes that it is important that we explore ways to achieve
results in a timely fashion. Canada intends to participate actively in the preparatory
process of fashioning the scope, format, and content of mandated and new negotiations.
Consideration should be given to how negotiations on a cross-section of issues could be
concluded at different times. This approach might offer a balance of incentives to
encourage participants in the WTO negotiations to move forward quickly and to achieve the
Taken together, these initiatives demonstrate that
the trade agenda is increasingly about strengthening markets, in addition to opening
markets, and reflects the horizontal, domestic agenda of regulatory reform, democratic
development, and good governance. We are working to achieve these objectives by creating a
predictable and transparent supervisory structure that ultimately avoids corruption and
creates a stable environment for traders, investors, and consumers.
The recent turmoil in the worlds financial
markets have led to suggestions similar to those heard in the 1930s that new
barriers to trade and investment should be erected, and that liberalization has gone too
far. In the 1930s, these voices won the day and led to disastrous consequences. The
reality is that we need the opposite approach. It is only through open trade and
free-flowing investment and technology that our economies will maintain or regain solid,
sustainable growth. The threat to renewed prosperity is not the global financial upheaval;
rather it is the risk that we may lose sight of the foundations upon which economic
prosperity of the past fifty years rests. Canada thus will work to ensure greater
institutional coordination such as between the WTO, the International Monetary Fund, and
the World Bank.
Canada will continue to work towards greater
transparency in shaping and conducting trade negotiations, and in the day-to-day conduct
of the WTO's work. As outlined in a recent joint Canada-US proposal, we have made
proposals that would expedite the circulation of dispute panel reports, expand the number
of unrestricted documents, and expedite their circulation.
Canada will continue to seek bilateral and regional
trade agreements to complement multilateral efforts. Canada recognizes that such
agreements often bring results in a shorter time-frame than is possible in a global forum,
that they advance the multilateral agenda, and that they maintain the momentum for
broad-based trade liberalization. A basic tenet is that these regional trade initiatives
remain consistent with the primacy of the WTO framework. In this respect, Canada will
continue to be active in the work of the WTO Committee on Regional Trade Agreements to
ensure that regional agreements are thoroughly examined with respect to their consistency,
both in law and in spirit, with the WTO. Canada is particularly concerned that the
Committee has been unable to conclude the examination of individual regional trade
agreements notified to the WTO. For example, the examination of NAFTA, which started in
March 1994, has still not been completed.
The framework provided by the NAFTA, and its ongoing
implementation, will continue to be an important element of Canadian trade policy. Canada
will continue to work toward market access objectives in additional areas such as
services, government procurement, and the application of trade remedies. Additional
priorities to be addressed are being developed by the three NAFTA members with a view to
expanding trade and investment further.
In respect of the Free Trade Area of the Americas
(FTAA), the current challenge is to achieve concrete results in the early phase of the
process, including progress with respect to business facilitation and engaging civil
society. Challenges remain in APECs being able to implement EVSL, particularly in
the current economic context.
Canada will continue to pursue improved and more
effective relations with the EU. At the same time, Canada will work towards combining the
present three-pronged strategy which involves separate negotiations on trade
liberalization and facilitation between the EU and Canada, Mexico, and the United States,
into a more coherent framework.
Canada has recently launched free trade negotiations
with the countries of the European Free Trade Association (EFTA): Norway,
Switzerland, Iceland and Liechtenstein. These
negotiations are expected to progress quickly.
In terms of its bilateral relations, Canada will
give priority to managing its relationship with the United States as, by far, the US will
continue to be Canada's largest export market.
As Canada pursues various trade negotiations and
initiatives, it faces both the challenge and opportunity to enhance public understanding
of the evolving international trade agenda, the contribution of trade and investment to
jobs and growth, and Canada's existing and prospective international commitments. The
active interest of the public reflects the fact that we increasingly deal with issues once
considered "domestic." Concern about the domestic impact of competition for
markets and foreign investment, and the fallout from the crisis in global financial
markets has expressed itself in public pressure to reflect social and cultural concerns in
the development of trade policies and negotiation of agreements.
Concerns about sovereignty, the integrity of social
policies, protecting the environment, maintaining national identity, and better sharing of
the benefits of trade resonate as much in Canada as elsewhere. Canada will continue to
address these concerns and uphold the integrity of its social policies by ensuring that
social impacts are considered fully in the formulation of trade policy initiatives. Canada
remains committed to close consultation with its private and public sectors and with our
trading partners in the WTO to ensure that trade and investment liberalization does not
undermine basic values, standards, culture, or a government's right to regulate for
legitimate public interests within the broad context of the primacy of the rule of law in
Considerable work lies ahead; Canada
will continue to be fully engaged in analysis, discussions, consultations, and
negotiations to realize the further benefits and resulting prosperity that will flow from
an effective, strengthened and expanded world trading system. Back to top