19 November 1996
POLICY REVIEW BODY: REVIEW OF CANADA
TPRB'S EVALUATION Back to top
The Trade Policy Review Body of the
World Trade Organization (WTO) conducted its fourth review of Canada's trade policies on
18 and 19 November 1996. The text of the Chairperson's concluding remarks is attached as a
summary of the salient points which emerged during the two-day discussion.
The review enables the TPRB to conduct a collective
examination of the full range of trade policies and practices of each WTO member country
at regular periodic intervals to monitor significant trends and developments which may
have an impact on the global trading system.
The review is based on two reports which are
prepared respectively by the WTO Secretariat and the government under review and which
cover all aspects of the country's trade policies, including: its domestic laws and
regulations; the institutional framework; bilateral, regional and other preferential
agreements; the wider economic needs and the external environment.
A record of the discussions and the Chairperson's
summing-up, together with these two reports, will be published in due course as the
complete trade policy review of Canada 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), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992 & 1996),
Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991), Colombia (1990 &
1996), Costa Rica (1995), Côte d'Ivoire (1995), the Czech Republic (1996), the Dominican
Republic (1996), Egypt (1992), the European Communities (1991, 1993 & 1995), Finland
(1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India
(1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya
(1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995),
Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991),
Norway (1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland
(1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic
(1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991
& 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States
(1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia
(1996) and Zimbabwe (1994).
TRADE POLICY REVIEW BODY: REVIEW OF
CONCLUDING REMARKS BY THE CHAIRPERSON Back
Over the past two days, the Trade Policy Review Body
has conducted the fourth review - the first under WTO provisions - of Canada's trade
policies and practices. These remarks, made on my own responsibility, are intended to
summarize the salient points of the discussion; they do not substitute for the Body's
collective evaluation and appreciation, which will be reflected in the minutes of the
The discussion developed under four main themes: (i)
the general economic situation and the process of deregulation and liberalization; (ii)
regional and multilateral trade relations; (iii) trade and investment policies; and (iv)
In addition to the discussion, participants raised a
large number of questions in writing. The representative of Canada provided comprehensive
written replies in the context of the meeting and undertook to provide further details as
General economic situation and the process of
deregulation and liberalization
Members noted the improvement in Canada's
macro-economic performance in the past two years. Economic growth had essentially been
driven by exports, inflation was kept low, and fiscal policy aimed at bringing the federal
budget into medium-term balance. Unemployment remained high, despite some recent
improvement; Members asked whether this might lead to protectionist pressures.
Members noted that the strength of exports benefited
both from strong demand in the United States and from the structural effects of trade
liberalization under the WTO and the NAFTA. Reflecting strong economic expansion in the
United States, economic integration deepened, with the U.S. share of Canada's trade rising
to four-fifths of merchandise exports and two-thirds of imports. While acknowledging that
this reflected Canadian firms' ability to operate in a highly competitive market, several
Members stressed the cyclical vulnerability inherent in such dependence on one
destination. Some Members asked whether Canada's participation in regional and bilateral
trade initiatives, comprising the FTAA, APEC and free-trade agreements with Israel and
Chile, could be seen as a response to this trend.
Members recognized that Canada's efforts towards
trade liberalization, complemented by domestic reforms, had created a stronger basis for
long-term economic expansion. Most sectors of the economy and a wide range of policy areas
had been affected.
Members noted a continuing duality in Canada's trade
policy between the federal competence for the negotiation of international agreements and
the provinces' responsibility for the implementation of such agreements in certain areas.
In this connection, Members stressed the need for closer co-ordination between the federal
Government and provinces and expressed concerns about remaining provincial restrictions in
areas such as government procurement, investment, local content requirements and
subsidies. The simultaneous entry into force of the NAFTA, the WTO Agreements and the
Agreement on Internal Trade (AIT) showed the possibilities of synergy among the different
levels of government action; Members thus encouraged Canada to complete and implement the
AIT in order to address such restrictions.
The representative of Canada replied that his
country was greatly dependent on international trade and investment flows; further trade
liberalization and internal deregulation, complemented by prudent and balanced fiscal
policies, were seen as the path to maximizing economic growth. There were no signs of
protectionist pressures resulting from the employment situation.
Challenges inherent in Canada's federal system were
being met by constant and close co-operation between federal and provincial authorities.
Under the AIT, work was in progress to streamline and harmonize regulations in many areas
of goods, services and factor movements; negotiations were underway to extend its scope
and coverage, including in areas such as labour mobility, procurement and energy. He cited
instances where provincial practices had been brought into line with Canada's
The representative did not believe that the softwood
lumber agreement with the United States would lead to challenges by trading partners in
Regional and multilateral trade relations
Members recognized Canada's strong support for the
multilateral trading system and its contribution to preparations for the WTO Ministerial
Conference in Singapore. They noted Canada's progress in implementing and consolidating
WTO Agreements, which had contributed to a more liberal trade régime in several areas.
While showing appreciation for Canada's propensity to use WTO procedures to solve
bilateral disputes with the United States, some Members sought clarification on the basis
for choosing between WTO and NAFTA procedures.
Members generally saw Canada's participation in
regional initiatives through APEC, the FTAA and the newly concluded free-trade agreement
with Chile as complementing its actions at the multilateral level. They also viewed
Canada's parallel implementation of the NAFTA and WTO agreement as complementary in
general. However, some Members expressed concerns about possible trade diversion stemming
from bilateral or regional preferences; in this connection, they linked the expansion of
bilateral trade in textiles and clothing and in motor vehicles to the strengthening of
NAFTA rules of origin and the growing gap between NAFTA and m.f.n. tariffs.
The representative of Canada responded that the
GATT, and now the WTO, was the "bedrock" of his country's trade policy, and the
framework for Canada's other bilateral or regional initiatives. Although Canada was
obliged to place emphasis on managing its relationship with its largest trade partner, and
implement the NAFTA, it continued to work for the complementarity of regional and
multilateral rules. In this connection, he clarified the distinctions between WTO and
NAFTA dispute settlement provisions, which had differing objectives and procedures.
Trade and investment policies
Members welcomed the continued reductions in tariffs
under the NAFTA and WTO agreements and the further autonomous cuts being made in m.f.n.
and preferential rates. Average m.f.n. tariffs on manufactures were low; however, there
were still significant peaks in textiles and clothing. By contrast, out-of-quota tariffs
in agriculture were often prohibitive. Some Members called attention to the
"graduation" proposals for Canada's GPT.
Members recognized that new anti-dumping initiations
by Canada had declined in the last two years, continuing a trend established in the
mid-1980s, and sought information regarding the current review of Canada's Special Import
Measures Act. However, they noted that high duties had been imposed in certain cases and
that some measures had persisted over long periods of time in areas where few imports had
Several Members asked when Canada intended to
include sub-federal entities in its coverage under the Government Procurement Agreement.
Questions were also raised about buy-Canada provisions at the sub-federal level, and on
Members noted that conditions for foreign investors
were steadily improving through the removal of ownership restrictions in financial
services at the federal level, and the application of lower investment review thresholds
for WTO Members, in parallel to those applied under NAFTA. While access for investment in
manufacturing was recognized as generally free, concern was expressed about remaining
restrictions in some services sectors at the federal and provincial levels.
Some Members called for stricter application by
Canada of intellectual property rights, particularly in the fields of copyright protection
and geographical indications for wines and spirits. Several Members asked for
clarification of Canada's export promotion initiatives, in particular the Export
Development Corporation, Canada's new International Business Strategy, and provincial
In return, the representative of Canada stressed
that Canada's performance in the tariff area was better than indicated in the TPR Report;
across all imports, the trade-weighted applied tariff averaged only 1.6 per cent.
Referring to the gap between m.f.n. and preferential rates, he noted that movement towards
global free trade would reduce such gaps; Canada remained ready to support further
multilateral tariff liberalization. The ongoing three-year tariff review was intended to
make the tariff system simpler, more transparent and predictable, and to reduce regulatory
costs. Consultations with the business sector were underway with a view to introducing a
new customs tariff on 1 January 1998. Canada was also reducing its tariff on textile and
clothing items; unilateral cuts made prior to the conclusion of the Uruguay Round were
covered by the Uruguay Round reduction commitments and would narrow the gap vis-à-vis
NAFTA rates. There were no plans to introduce a "graduation" element into
Canada's GPT scheme.
The recent decline in anti-dumping initiations was
attributable to more favourable economic conditions and strengthened competitiveness.
Canada's view was that in a free-trade environment domestic competition laws could replace
anti-dumping provisions; anti-dumping procedures had therefore been eliminated under the
bilateral agreement with Chile, and Canada continued to push for their abolition in the
NAFTA context. The representative stressed that under Canada's prospective duty
enforcement system, goods priced above their normal values did not incur anti-dumping
duties. Canada had long had a "sunset" clause providing for regular reviews of
measures in force.
In the procurement area, Canada had undertaken in
1994 to provide a final list of provincial entities to be included in the WTO Agreement,
on the basis of commitments obtained from provincial governments. In October 1995,
referring to access limitations to important markets, primarily the United States, Canada
had made this inclusion subject to reciprocal offers on sectors of priority interest as
well as to the introduction of limits on the use of small business and other set-asides so
as to provide an acceptable security of access. Should circumstances change, the Canadian
provinces were prepared to proceed with offers. Additional information would be given in
reply to questions.
The representative stressed the openness of the
Canadian investment scheme. Companies might incorporate at the federal, provincial or
territorial levels or they might operate by registering in the province of operation as
foreign corporations. The question of "sensitive" sectors needed further
Members recognized that Canada had taken several
initiatives aimed at revitalizing the economy by reducing State involvement. Public
expenditure on agriculture had been reduced by 20 per cent, due essentially to the
elimination of grain transport subsidies. However, supply management regimes for dairy,
poultry and egg products retained various restrictions on foreign access. Members
expressed concerns about high import barriers on these products, now in the form of
restrictive tariff quotas, and questioned the system of quota allocation, which relied on
traditional importers and left limited scope for improvement in market access. Concerns
regarding specific products such as cheese or wheat were raised. Members sought
clarification from Canada on future steps towards liberalization in agriculture.
Members recognized the rapid growth of the energy
sector in recent years, but highlighted the contrast between the performance of the
largely deregulated oil and gas industry and the electricity sector which remained impeded
by the persistence of interprovincial barriers to trade.
Members recognized that the recent strong
performance of manufacturing exports had benefited from greater economic integration with
the United States. Several Members questioned Canada's high m.f.n. tariffs in textiles and
clothing; while recognizing that Canada was one of the few importing countries that had
integrated under the WTO Agreement on Textiles and Clothing (ATC) any items previously
subject to quantitative restrictions, they noted the limited impact of such an initiative.
They hoped that more items will be integrated under the second and third phase of the
Agreement. Some Members expressed concern about possible trade diversion in this sector
resulting from stricter rules of origin under the NAFTA and the widening tariff gap
vis-à-vis m.f.n. rates, despite certain compensatory quotas for non-originating products.
In the motor vehicles industry, Members stressed Canada's attractiveness as an assembly
and part production location. Some Members appreciated the elimination of m.f.n. tariffs
on auto part imports, but noted significant differences between Auto-Pact and non
Auto-Pact Members for tariffs on assembled cars. They regretted that the Canada-U.S.
Free-Trade Agreement did not allow companies from non-member States to join the Auto-Pact.
Members also noted that, due to the rapid expansion
of Canada's modern, technology-based industries, the structure of production and trade had
gradually shifted from resource-based to "knowledge-based" industries. With a
few exceptions, advanced-technology activities were concentrated in Canadian subsidiaries
of multinational enterprises, surrounded by a network of smaller, innovative domestic
firms. However, some Members noted that, overall, research and development spending in
Canada remained low by OECD standards.
Finally, Members showed their appreciation for
recent deregulation in some of the largest, and previously most protected, services
sectors of the Canadian economy. They noted that competition had been introduced into
large segments of the financial services, telecommunication and air transport industry and
that, since reforms had been accompanied by new international commitments, foreign
suppliers had generally benefited. However, several Members pointed to remaining
restrictions on foreign investment in areas such as telecommunications and transport and
encouraged Canada to remove these in the context of GATS negotiations. Some Members felt
that market access in banking was still severely restricted by the impossibility to branch
directly into Canada from the home country. Other Members questioned "routing"
obligations applying to international telecommunications services.
The representative of Canada responded that Canada's
current tariff quota system reflected its Uruguay Round concessions on agriculture. With
regard to further WTO discussions on agriculture, he said that Canada fully supported a
programme of analysis and information exchange within the WTO on agricultural trade-policy
matters, not limited to market-access questions, with a view to preparing for the eventual
resumption of negotiations foreseen in the Agreement on Agriculture.
The representative stated that Canada had fully
implemented its commitments in the first phase of integration under the Agreement on
Textiles and Clothing and, despite a difficult adjustment process, was the only WTO Member
to include a restrained product in its list. The Government of Canada had been consulting
with stakeholders concerning Canada's notification of products to be integrated in the
second phase of the ATC, which would be notified to the WTO by the end of 1996.
The representative of Canada recalled that Canada
had long pursued liberalization in financial services, transportation and
telecommunication services. He mentioned in particular Canada's commitments to remove the
10/25 investment limit in federally incorporated financial institutions under the GATS,
except for schedule I banks for which the 10 per cent limit remained. The Government of
Canada had no plans to revise this latter provision. He said that the Government was
carefully considering the implications of two recent Parliamentary Committees'
recommendations to allow direct branching from abroad. Canada had also offered to bind its
current policies regarding foreign investment and traffic routing in the ongoing WTO
negotiations, but was reviewing its approach to such negotiations to help achieve an
acceptable mutual agreement by the deadline of February 1997.
*************** Back to top
Members fully acknowledged the export-driven growth
in the Canadian economy over the past two years, the liberalization in certain sectors and
the various initiatives to review and update trade policy mechanisms. However, a number of
concerns that had been expressed at earlier reviews remain. These include continuing high
levels of protection in the agricultural sector, the large number of anti-dumping measures
still in force, and the problems of ensuring that policies shaped at federal level were
fully carried through at sub-federal level. Other issues that received emphasis were
remaining restrictions in the services sector and the manner of implementation of the
Agreement on Textiles and Clothing.
Developments in relation to NAFTA were of particular
interest to Members, both in the wider context of interaction between regional and
multilateral arrangements and also in terms of Canada's heavy dependence on the U.S.
market. Members thus encouraged Canada to maintain its strong commitment to
multilateralism and to continue to give close attention to ensuring complementarity
between regional and multilateral initiatives.