RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/112
12 February 2003
(03-0810)
Trade Policy Review Body
TRADE POLICY REVIEW
CANADA
Report by the Secretariat
This report, prepared for the seventh Trade Policy Review of Canada, has been
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from the Government of Canada on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Ms. Catherine Hennis-Pierre (tel. 739 56 40), Mr Angelo Silvy (tel. 739 5249),
Mr. Karsten Steinfatt (tel. 739 6759), and Mr. Raymundo Valdés (tel. 739 5346).
Document WT/TPR/G/112 contains the policy statement submitted by the
Government of Canada.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Canada.Canada WT/TPR/S/112
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) E CONOMIC AND POLICY DEVELOPMENTS vii
(2) M EASURES DIRECTLY AFFECTING IMPORTS viii
(3) O THER MEASURES AFFECTING TRADE viii
(4) P OLICIES IN SELECTED NON -SERVICE SECTORS ix
(5) P OLICIES IN SELECTED SERVICES x
I. RECENT ECONOMIC DEVELOPMENTS 1
(1) O UTPUT , EMPLOYMENT AND PRICES 1
(2) M ONETARY POLICY AND EXCHANGE RATES 4
(3) F ISCAL POLICY 5
(4) B ALANCE OF PAYMENTS 7
(5) T RADE AND INVESTMENT PATTERNS 7
(i) Trade in goods 7
(ii) Trade in services 9(iii) Foreign investment 10
(6) O
UTLOOK 11
II. TRADE AND INVESTMENT POLICY FRAMEWORK 12
(1) I NTRODUCTION 12
(2) I NSTITUTIONAL AND POLICY FRAMEWORK 12
(3) F OREIGN INVESTMENT REGIME 14
(4) P ARTICIPATION IN THE WTO 16
(i) Trade policy priorities 17(ii) International investment policy 20
(iii) Trade and development 20
(iv) WTO dispute settlement 21
(5) P
REFERENTIAL TRADE AND INVESTMENT RELATIONS 21
(i) Relations with the United States and Mexico 22(ii) Other preferential trade agreements 23
(6) O
THER TRADE AND INVESTMENT RELATIONS 25
III. TRADE POLICIES AND PRACTICES BY MEASURE 27
(1) I NTRODUCTION 27
(2) M EASURES DIRECTLY AFFECTING IMPORTS 28
(i) Customs procedures 28(ii) Rules of origin 29(iii) Tariffs 30
(iv) Other charges and taxes 39
(v) Contingency measures 41(vi) Quantitative restrictions and controls 48(vii) Standards, technical regulations, and sanitary and phytosanitary measures 51WT/TPR/S/112 Trade Policy Review
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(3) M EASURES DIRECTLY AFFECTING EXPORTS 57
(i) Export controls, restrictions and charges 57
(ii) Export financing and other assistance 60
(4) M EASURES AFFECTING PRODUCTION AND TRADE 65
(i) Competition policy 65(ii) Financial and other assistance to business 69(iii) Local-content requirements 74
(iv) State-owned enterprises 75
(v) Government procurement 77
(vi) Intellectual property rights 82
Annex III.1: Provincial and Territorial Government Procurement 89
IV. TRADE POLICIES IN SELECTED SECTORS 93
(1) I
NTRODUCTION 93
(2) A GRI-FOOD 94
(i) Introduction 94(ii) Main forms of support 95(iii) Tariff quotas 98
(iv) Export support 102
(v) State trading and other marketing arrangements 103
(3) T
EXTILES AND CLOTHING 105
(i) Introduction 105(ii) Trade policy developments 105
(4) S
TEEL 110
(5) T ELECOMMUNICATION AND AUDIOVISUAL SERVICES 113
(i) Introduction 113(ii) Telecommunications services 113(iii) Audiovisual services 116
(6) M
ARITIME TRANSPORT 118
(i) Introduction 118
(ii) Regulatory framework 119(iii) Measures affecting market access 120(iv) The national port system 121
(7) A
IR TRANSPORT 122
(i) Introduction 122
(ii) Regulatory framework 122
(iii) Competition policy developments 125
(8) F INANCIAL SERVICES 126
(i) Introduction 126(ii) Banking services 127
(iii) Insurance services 129
REFERENCES 133
APPENDIX TABLES 135Canada WT/TPR/S/112
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CHARTS
Page
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 MFN tariff averages 1996-02 (selected years), and final bound tariff (2004) 32
III.2 Distribution of MFN tariff rates, 2002 34III.3 Tariff escalation for selected manufactured products, 2002 35III.4 Anti-dumping duties in force, by partner, 31 December 2001 45
III.5 Technical regulations enacted by the Government of Canada, 1972-01 52
III.6 Commercial loans exposure, by sector, 1998-01 63III.7 Current and capital assistance to business, 1991-01 71III.8 Retail outlets and products for sale in Alberta, 1993 and 2001 76
IV. TRADE POLICIES IN SELECTED SECTORS
IV.1 Estimates of support to agriculture by the largest OECD agricultural exporters,
1986-01 96
IV.2 Government expenditure in support of the agri-food sector, 1994-02 97IV.3 Imports of clothing, 1994, and 1999-01 108
IV.4 Telecommunications Service Industry Key Players 114
TABLES
I. RECENT ECONOMIC DEVELOPMENTS
I.1 Selected macroeconomic indicators, 1997-02 2
I.2 Selected monetary and exchange rate indicators, 1997-02 5I.3 Selected fiscal indicators, 1997-02 6I.4 Canada's balance of international payments, 1997-02 8I.5 International transactions in services, by category, 1998-01 9
I.6 Canada's international investment position, 1997-01 10
II. TRADE AND INVESTMENT POLICY FRAMEWORKII.1 Selected investment restrictions and controls by sector, 2002 15
II.2 Canada's notifications under WTO Agreements, September 1998- August 2002 18
II.3 Canada's WTO negotiating proposals for trade in services 19
II.4 Canada's preferential trade and investment agreements and arrangements,
December 2002 22
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Summary analysis of Canada's applied tariff, 2002 31
III.2 Import duties by tariff regime, 2000 36III.3 Provincial sales taxes, June 2002 39III.4 Recommendation on remedies steel safeguard investigation 42III.5 Anti-dumping investigation initiations, 1 January 2000-31 December 2001 46
III.6 Countervailing duty measures in force, 30 June 2002 48
III.7 Controlled or licensed importations, June 2002 49III.8 Technical and sanitary and phytosanitary regulations, main agencies and legislation 53III.9 Export control list 58
III.10 EDC's total financial exposure by country, 2001 62WT/TPR/S/112 Trade Policy Review
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Page
III.11 Selected activities of the Competition Bureau, 1997-01 69
III.12 Selected support measures by Investissement Québec 73III.13 Domestic and imported sales of beer, wine and spirits, 1995-01 77
IV. TRADE POLICIES IN SELECTED SECTORS
IV.1 Tariff quotas, fill rates and their respective administration methods,
2002 or latest available year 99
IV.2 Textiles and clothing indust ries, selected indicators 1990-01 106
IV.3 Average tariff rates for textiles and clothing, 2000 and 2002 106IV.4 Clothing restraint levels with utilization rates exceeding 90%, by country, 2001 109IV.5 Main indicators of the Canadian Steel Industry, 1997-02 112
APPENDIX TABLES
I. RECENT ECONOMIC DEVELOPMENTS
AI.1 Exports by product, 1995-01 137
AI.2 Imports by product, 1995-01 138AI.3 Exports by destination, 1995-01 139AI.4 Imports by origin, 1995-01 140
II. TRADE AND INVESTMENT POLICY FRAMEWORK
AII.1 Dispute-related WTO matters involving Canada, September 2000-December 2002 141III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Definitive anti-dumping duties in force, 31 December 2001 144Canada WT/TPR/S/112
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SUMMARY OBSERVATIONS
1. Since Canada's previous Review in
December 2000, adjustments in its trade
policies and practices have confirmed that its
trade regime is amongst the world's mosttransparent and liberal, notwithstanding
barriers to imports in a few albeit important
sectors.  Sound economic policies and an
outward-looking trade regime have allowed
Canada to maintain economic growth in theface of the global economic slowdown,
including in the United States with which the
Canadian economy is closely integrated.  To
diversify its economic relationships, and for
reasons of political cooperation, Canada has
actively sought to expand its network of
preferential agreements, which have furtherliberalized its trade regime but raise the
possibility of distorting trade and investment
flows.
2. Although the Canadian economy is
generally free from significant policy-induceddistortions, a number of activities remain
subject to interventions, notably in agriculture,
textiles and clothing, steel,
telecommunications, audiovisual, air and
maritime transport, and insurance.  In severalof these sectors change is under way.
Carrying on additional reforms would help
reduce remaining barriers to trade and
investment and improve resource allocation.
The latter is an important consideration asCanada's experience shows the benefits for
improved living standards of pro-competitive
policies that support production based on
comparative advantage.
(1) ECONOMIC AND POLICY DEVELOPMENTS
3. The Canadian economy has
successfully weathered the recent slowdown in
the world economy, posting relatively strong
growth rates at a time of reduced global
economic growth.  After stalling in 2001,
economic growth recovered in the wake ofstrong domestic demand, and proceeded at
rates above 4% in the first half of 2002, before
slowing down somewhat in the second half.
Inflation has been kept under control, under
Canada's successful target policy, which seeksto limit inflation to around 2% a year.  Low
inflation, together with fiscal discipline in
previous years, has made it possible to use
counter-cyclical fiscal policy and to ease the
monetary stance to stimulate growth.
4. Canada accounts for 5.5% of total
world exports and for 4.5% of world imports:
in 2001, Canada was the world's fifth largest
trader.  Trade and foreign investment play a
particularly important role in Canada'seconomy.  Trade, equivalent to some 80% of
GDP, is largely with the United States, which
accounts for some 85% of Canada's exports,
and 66% of its imports.  Although this makes
the Canadian economy potentially vulnerable
to events in the United States, Canada has
successfully withstood the effects of the U.S.slowdown since 2000.  Canada has also made
remarkable progress in the reduction of its
public debt burden, as the federal debt to GDP
ratio fell from 71% in 1995 to 49% in 2002.
5. Canada's trade and investment
policies are formulated jointly by the Federal
Government and the provinces and territories;
this frequently involves consultations with the
private sector and with Canadian citizens.
Canada considers the WTO as the foundationfor its trade policy and relations.  Since its last
Review, Canada has been actively engaged in
the current round of WTO negotiations, with a
view to strengthening existing rules and
widening the scope of WTO disciplines.Canada has been involved as a complainant in
various cases under the WTO dispute
settlement mechanism, (e.g., aircraft, beef);
concurrently, a number of long-established
Canadian sectoral support programmes havebeen challenged under multilateral rules,
including those for dairy exports and aircraft.
6. Canada considers that multilateral,
regional, and bilateral initiatives are mutually
reinforcing, and paramount importance is
given to managing the relationship with the
United States.  Canada has continued tonegotiate free-trade agreements (FTAs),
resulting in an elaborate system of preferential
tariffs and rules of origin that, although
outward oriented, could potentially distortWT/TPR/S/112 Trade Policy Review
Page viii
trade and investment flows.  Canada has
concluded FTAs with Chile, Costa Rica,
Israel, Mexico, and the United States, and is
exploring such links with Caribbean, Central
American and Andean countries;  it is alsonegotiating with EFTA and Singapore.
Canada provides unilateral tariff preferences
to developing countries under the Generalized
Preferential Tariff (GPT), the Least Developed
Country Tariff, and under the CARIBCAN.
(2) M
EASURES DIRECTLY AFFECTING
IMPORTS
7. Since its last Review, Canada has
continued to liberalize its trade regime.
Simplified customs procedures have been
introduced both to facilitate trade and
reinforce border security.  MFN tariffs havebeen slightly reduced on a large array of
products, and the average MFN tariff has
declined from 7.2% to 6.8%.  However,
considerably higher tariffs continue to apply
to agri-food, clothing, and boats and ships.  Inparticular, the production of dairy products
and margarine, as well as chicken, turkey,
eggs and broiler hatching eggs is protected by
out-of-quota tariffs that frequently exceed
200%;  in-quota access is in some instancesextremely small, or reserved for imports
covered by certain preferential arrangements.
Tariff concessions favouring members of the
1965 Canada-U.S. Auto Pact were eliminated
in February 2001 following a WTO DisputeSettlement Panel.
8. Among preferential partners, tariffs
applicable to imports from Chile and Mexico
have been further reduced.  In November
2002, tariff preferences were granted toimports from Costa Rica under the FTA
concluded in 2001.  Duty-free and quota-free
treatment for least developed countries was
announced, effective in January 2003.
9. Canadian producers have continued
to seek protection from imports considered to
be dumped through anti-dumping actions.  In2000 and 2001, 46 new anti-dumping
investigations were initiated and 32 new final
measures and one undertaking were imposed.As at December 2001, 91 anti-dumping
measures plus three price undertakings were
in force.  As a result of sunset reviews, this
number had been reduced to 87 in June 2002.
Some 70% of the duties applied cover steelproducts.  The duration of anti-dumping
actions has come down, but some 9% of
measures have been in place for ten years or
more.
10. In March 2002, Canada initiated its
first safeguard investigation since the
establishment of the WTO, concerning nine
steel products.  Recommendations on the
application of measures for five of these
products were issued by the Canadian
International Trade Tribunal in August 2002.
No measure had been taken as at December2002.  When conducting safeguard
investigations, special rules apply to imports
from other NAFTA countries, and from Chile
and Israel under their respective FTAs with
Canada.
(3) O
THER MEASURES AFFECTING TRADE
11. Quantitative restrictions on imports
relate mostly to security, safety,
environmental, health, and sanitary issues.
Sanitary and phytosanitary measures haveresulted in meat from ruminants being
imported from only six countries in early
2003.  Although a large number of technical
regulations is in place, Canada's Standards
Strategy aims at promoting the use of(voluntary) internationally accepted standards
to the greatest extent possible.
12. Market distortions may arise from
local-content, performance or purchasing
requirements maintained by certain provinces.They affect mainly alcoholic beverages and
the mining sector.  In a number of provinces,
local wines benefit from less restrictive
marketing conditions than foreign products.
Federal local-content requirements apply in
the "cultural" sectors.  Canada limits exports
of a number of items to ensure sufficientsupplies for domestic industries.  Products
affected include logs, and fish from certain
provinces.Canada WT/TPR/S/112
Page ix
13. Federal and provincial assistance is
extended to selected economic activities, with
effects on production and, potentially, trade
and investment.  A significant share of total
financial transfers to the economy goes to theagri-food sector.  Support to the aircraft
sector has continued to be a source of trade
friction.  Federal and provincial government-
owned enterprises with special or exclusive
privileges are involved in alcoholic beveragesand wheat trade.  The production of dairy
products, poultry and eggs is supply-managed
by public sector agencies.
14. Canada maintains a transparent
government procurement regime.  It grants
national treatment for procurement covered by
the WTO Agreement on GovernmentProcurement (GPA) and other international
agreements.  Procurement not covered by
these agreements is based on reciprocity, and
must in general be supportive of national
objectives.  Canada has yet to table an offer atthe subfederal level under the GPA.  Provinces
have their own procurement agencies, and
some grant regional or local preferences for
procurement not falling within the scope of the
domestic Agreement on Internal Trade.  Forother procurement, provinces grant similar
access conditions to suppliers from the rest of
Canada, but do not extend this automatically
to foreign suppliers.
15. New legislation on competition policy,
which came into effect in June 2002, extended
considerably the powers of the Canadian
Competition Tribunal.  The new law also
amended several aspects of competition policy
legislation, including granting private partiesthe right to apply directly to the Competition
Tribunal to address matters regarding refusal
to deal, tied selling, exclusive dealing, and
market restrictions.  Canada considers
international cooperation in competition
policy as an important element to accompany
trade liberalization, and has addressed theissue at the bilateral, regional, and
multilateral levels.  The legislation passed in
2002 facilitates this cooperation.16. Canada has shown active interest in
intellectual property-related work at the WTO,
where its own legislation has faced a number
of legal challenges.  To bring its legislation
into conformity with a WTO Appellate Bodydecision, Canadian patent law was amended
in 2001.  Canada signed the Patent
Cooperation Treaty in May 2001, which
required making amendments to Canadian
Patent Rules.  In December 2002, the SupremeCourt ruled that higher life forms cannot be
patented.  A bill to amend the compulsory
licence provisions of the Copyright Act is
under consideration.
(4) P
OLICIES IN SELECTED NON -SERVICE
SECTORS
17. The agriculture and related
processing sector is an important generator of
employment, export revenue, and value added.
Reflecting this, an Agricultural Policy
Framework is being developed to help the
sectors respond better to consumer demandand global competition.  Nevertheless, the
sector remains a large recipient of financial
assistance, which increased in 2001, reversing
earlier trends. Although Canadian assistance
to agriculture remains minor relative to otherlarge agricultural exporters, it can compound
the problem of subsidies and market
distortions affecting world markets.  The main
forms of assistance include income support
and crop insurance programmes.  As noted,import restrictions in the form of high tariffs
apply mainly to dairy and poultry, although
tariffs on agri-food products are higher than
average.  The government-owned Canadian
Wheat Board has a monopoly for domesticsales and exports of most wheat, durum, and
barley produced in Canada.
18. The textiles and clothing sector has
traditionally benefited from import protection
and adjustment assistance.  The main trade
measures are import quotas, affecting half of
the value of imports, and high tariffs.  Since2000, under WTO commitments, tariffs have
been reduced and a third phase of quota
elimination implemented.  Partly as a result of
the liberalization, imports gained furtherWT/TPR/S/112 Trade Policy Review
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market share, while some Canadian
manufacturers successfully tapped the U.S.
market as a source of growth.
19. The Canadian steel industry has
experienced a decline in production andexports during the period under review.
Productivity has improved but pressures for
protection have increased.  The trend to
increase protection to the steel industry is
evidenced by the high number of anti-dumpinginvestigation initiations concerning steel
products.  Provisional duties were applied in
most cases.  As noted, in March 2002 Canada
launched a safeguard investigation into
imports of steel products from all countries,
the result of which was a recommendation for
possible action for five products.  UnderCanada's steel import monitoring programme,
last renewed in August 2002 for three years,
individual automatic import permits are
required for each shipment of carbon and
specialty steel products.
(5) P
OLICIES IN SELECTED SERVICES
20. Canada's market access in services
has been further enhanced since 2000.  A
liberal environment is provided for foreign
commercial presence in Canada's financialservices industry, and the range of operations
that foreign bank branches may undertake has
been further expanded.  Recent reform has
also brought a relaxation of the limits on
individual ownership of large banks andinsurance companies;  unlike the banking
sector, which is mostly federally regulated,
insurance companies are also regulated at
provincial level, which may complicate market
access.21. Competition appears to have
increased in the telecommunications sector,
and the cost of certain services has dropped.
There have been no major regulatory changes
affecting market access or national treatmentin telecommunications, and Canadian
domestic ownership requirements remain in
place for facilities-based carriers.  Canada
also controls foreign participation in the
audio-visual sector, so as to support Canadiancultural content, but changes have taken place
regarding access to foreign satellite services.
22. In the airline industry, the main forms
of support to operators are barriers to foreign
ownership of airlines and to cabotage.  Since
2000, Canadian competition law has been
amended to put in place a special regime fordomestic airlines, and to add further
provisions regarding predatory behaviour in
the airline industry.  In addition, the individual
share ownership limit in Air Canada was
eliminated in late 2001.  New regulations haveliberalized charter services.
23. Gradual reform in the maritime
transport sector aims to increase competition
both among carriers and among ports, to shift
the financial burden of port management fromtaxpayers to users, and to down-size and
commercialize infrastructures in order to
increase efficiency and lower costs in the ports
system.  Conference operations were made
subject to greater competition.  Cabotageremains reserved for Canadian-flag ships.