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
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 WTOs full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRBs 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 WTOs 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 TPRBs discussion and the Chairmans 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 dIvoire (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).
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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.