WT/TPR/S/53 Trade Policy Review
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II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
(1) INTRODUCTION
1. Since its last Trade Policy Review in 1996, Canada's trade and investment policies have
developed within an essentially unchanged institutional framework characterized by shared
federal-provincial competencies.  Recent efforts by the federal and provincial authorities, notably
through the 1995 Agreement on Internal Trade, have reduced but not eliminated interprovincial tradebarriers.  Addressing domestic institutional factors that may inhibit foreign investment remains
another policy priority, reflecting the key role played by foreign capital in the Canadian economy.  As
described in Chapter III, recent policy initiatives also include the simplification of the tariff regime
and an ongoing review of the trade defence legislation.
2. During the last two years, Canada has continued to pursue a multi-track approach to trade and
investment policies, seeking to balance the NAFTA relation with the United States, bilateral and
regional preferential initiatives, and multilateral trade liberalization efforts.  Canada regards the
multilateral trading system as the best mechanism to  attract foreign investment and provide a secure
and fair environment for its firms operating abroad, and has continued to vigorously pursue a broad
range of actions within the WTO.  Managing the relationship with the United States remains Canada'sother key policy objective, although preferential links are being forged with other partners to promote
trade and investment and, thus, reduce reliance on U.S. markets and capital.
3. Canada's bilateral and regional initiatives have helped to establish an essentially
outward-oriented trade strategy;  nonetheless, these efforts have also created an elaborated system of
preferential tariffs and rules of origin that could result in economic distortions (see Chapter III).
Moreover, despite the improvements made in recent year s, interprovincial barriers continue to distort to
a certain extent the domestic environment for trade and investment, while some restrictions on foreigninvestment are still maintained at both the federal and provincial levels.  Practical difficulties in
balancing internal pressures stemming from Canada's federal system, regional integration, and
multilateral liberalization continue to complicate extern al relations in sectors considered sensitive, such
as supply-managed farm products and cultural activities.
(2) I
NSTITUTIONAL FRAMEWORK
(i) General considerations
4. International agreements are not self-executing under Canadian law and additional legislation
is necessary to implement legal obligations, incl uding under the WTO.  Under the Constitution, only
the Federal Parliament is authorized to legislate on the regulation of international and interprovincial
trade, and the Federal Government is free in law to  enter into international agreements without prior
consultations with the provinces.  The latter, however, have jurisdiction over property and civil rights
as well as all local and private matters.  This gives them considerable leeway to conduct policies
which, although not directed at importation, may af fect trade.  As a result, cooperation by the
provinces is often indispensable to implement international agreements.
5. Over time, a network of federal-provincial consultation and coordination mechanisms have
emerged.  These include quarterly meetings of federal and provincial officials to exchange
information, and consultations on current trade policy issues, a process that traces its origin to a
framework of consultations developed during the Canada-U.S. Free Trade Agreement and later
NAFTA and WTO negotiations  On a sectoral level, the Federal-Provincial Agricultural Trade Policy
Committee meets three to four times a year and holds conference calls at least once a month to
facilitate the exchange of information between th e federal and provincial governments.  PeriodicCanada WT/TPR/S/53
Page 15
federal-provincial colloquia allow discussions on emerging trends in trade policy and their impact on
domestic interests;  the first was held in October 1997 in the areas of standards and services.
6. Provinces have been actively involved in develo ping strategies to resolve international trade
disputes, such as those concerning beer, spirits, softwood lumber and the NAFTA Panel on tariffs for
supply-managed products on bilateral trade and, as observers, were invited to join the WTO
consultations on Canada's dairy products (section (4) below).  Provinces are represented in certaininternational meetings;  they participated, for example, in the WTO Singapore Ministerial Conference
in December 1996 and the UNCTAD Expert Meeting on ISO 14000 in October 1997.  Officers from
Canada's permanent mission to the WTO periodically visit provincial capitals and participate in
seminars or conferences in Canada.
7. A permanent advisory committee system provid es for a continuous, confidential flow of
information and advice between the Government and the private sector on international trade matters.
The system has two principal components:  the Sectoral Advisory Groups on International Trade
(SAGITs) and the Team Canada Inc. Advisory Board (TCIAB).  The 15 SAGITs provide sectoral
views while TCIAB's terms of reference extend to all international trade matters.  The TCIAB (which
replaced the International Trade Advisory Committee) provides advice on trade policy and marketaccess questions, as well as issues related to trade and investment promotion.  Business people are
invited to report to the Board problems they may be experiencing, by communicating in confidence
the barriers they encounter in foreign markets, and providing practical information and advice on
trade policy matters.
8. Since the early 1990s, Canada has been engaged in a process of regulatory reform to boost
economic efficiency by ensuring that the benefits of all government regulations outweigh the
associated costs (Box II.1).
(ii) Foreign investment regulations
9. No single agency is responsible for formulating or implementing investment regulations in
Canada.  The three principal departments with direct responsibility for investment are Industry;
Finance;  and Foreign Affairs and International Trade.
10. Foreign direct investment in Canada takes place within the framework provided by the
Investment Canada Act of 1985, which is administer ed by Industry Canada.  The purpose of the Act is
to encourage investment that contributes to economic growth and employment, and to provide for the
review of significant investments by non-Canadians to ensure such benefits.  Investments are judged
by criteria such as their impact on competiti on, productivity, compatibility with national and
provincial policies, and the participation of Canadians.  The review requirement applies if the assetvalue of the Canadian business being acquired exceeds:
- if the investor is a WTO Member, Can$179 million in 1998 (adjusted annually for
real growth plus inflation)
1;
- if the investor is not a WTO Member, Can$5 million for a direct acquisition and
Can$50 million for an indirect acquisition;  these limits also apply to WTO investors
                                                     
1Requirements at the federal level in mining, energy and services sectors are reviewed in
WTO (1996a), Chapter IV.WT/TPR/S/53 Trade Policy Review
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if the business is involved in uranium production, financial services, transport
services or cultural activities.2
11. Any investment in a cultural activity that falls below thresholds may be reviewed if the
Governor in Council authorizes a review in the public interest.  The Canadian authorities have
indicated that no investment proposals have been formally disallowed since the passage of the Act in
1985.
Box II.1:  Regulatory reform
The Canadian Government launched departmental and parliamentary reviews of regulations in 1992.
Departmental reviews required government departments to examine their regulations through public
consultations and to publicly justify their regulat ory programmes.  Departments and agencies completed
their reviews in 1993 and set up a schedule of revocations and revisions for the next five years.  The processwas completed in 1994 with 835 regulatory revisions and revocations having taken place.  Parliamentaryreviews were designed to determine the impact of fe deral regulation on Canadian competitiveness.  The
Standing Committee on Finance identified six areas fo r change and recommended, among other things,
better analysis so that regulatory goals could be achieved more effectively at lower costs;  more
collaboration with other governments in Canada and abroad;  and better coordination among federaldepartments.
In 1994, the Federal Regulatory Reform Agenda beca me a key item in the Government's Jobs and Growth
initiative.  The Agenda focused attention on the Business Impact Test (BIT), an interactive software-basedtool designed to help regulators ascertain the impact of proposed regulations on the private sector.  Since
1996, all regulatory departments and agencies are required to use the BIT, or an equivalent analysis, for
major regulatory changes.
In 1986, Canada adopted the Regulatory Policy, which required that regulatory authorities demonstrate that,
among other things, a problem  or risk exists, the benefits outweigh the costs, and that they have respected
inter-governmental agreements and taken full advantage of opportunities for coordination with othergovernments and agencies.  The Regulatory Policy was reviewed and updated in 1995 to require that
regulators minimize the regulatory burden on small businesses when considering new regulations and
changes to regulations.
The Treasury Board Secretariat m onitors the performance of regulator y authorities and the effectiveness of
this policy.  The Secretariat, in consultation with federal departments and users, has developed
regulatory-process management standards to improve the consistency of regulatory practices across
departments, and define clear levels of  system performance.  These st andards were implemented in 1996 by
seven departments responsible for the bulk of fede ral regulatory activities (Agriculture and Agri-Food;
Environment;  Fisheries and Oceans;  Health;  Industr y;  Revenue;  and Transport).  In late 1998, other
departments were assessing the implementation process.
Starting in 1998, the reporting of upcoming and future regulatory initia tives are incorporated into the
departmental Reports on Plans and Priorities, which are tabled in Parliament in the spring.  The objective is
to strengthen accountability to Parliament for the use of regulatory powers granted in the legislation.
Technical regulations must be prepublished and open for public comment for a minimum of 75 days;  the
authorities must notify Canada's trading partners throug h the WTO Enquiry Point at the Standards Council
of Canada.
Source: WTO Secretariat.
                                                     
2For other details see WTO (1996a), Chapter III(4)(iii).Canada WT/TPR/S/53
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12. After approval, reviewable investments are monitored by Industry Canada to ensure
compliance with the firm's commitments.  Non-Canadian investors must notify when they commence
a new business or acquire control of an existing Canadian business unless the investment is
reviewable.  There are no restrictions on the foreign investor's ability to repatriate investments or
profits but withholding taxes apply to the payment to non-residents of dividends, interest, salaries,
bonuses, commissions or other services rendered.  For certain investors, withholding taxes are
reduced under bilateral treaties with their country of residency.  Under the Canada Business
Corporations Act, companies may impose their own ownership restrictions if these are deemed
necessary, under federal or provincial law, to qualify for the operation of a business or for licences,
permits and other benefits;  these restrictions appear to be seldom used.
13. Various investment restrictions maintained at provincial level affect foreign participation in,
for example, large-scale projects, privatizations, petroleum and gas projects, electric power systems,
chicken production, liquor licences and mining leases.3  Several provinces regulate the sale and
ownership of land with respect to foreign owners, largely in the agricultural and recreational sectors.
Canada has made a number of reservations concerning tax and subsidy measures at the provincial
level in its Schedule of GATS commitments.
(iii) Domestic market issues
14. Despite federal-provincial efforts to improve the common framework for policy-making,
disparate provincial policies and interprovincial trade barriers remain an issue.  Examples of technical
barriers to internal trade include construction regulations;  criteria and processes for inclusion of drugs
under provincial health plans;  and prohibitions on advertising.  As already noted in previous Trade
Policy Reviews, supply management systems in the dairy, poultry and eggs sectors remain, and
continue to segment the Canadian market.  There are limited disciplines on investment incentives atdifferent levels of government but work is in progress to clarify and improve existing rules.  The
ongoing constitutional debate within Canada has also increased the degree of uncertainty over the
country's future framework for production, trade and investment.
15. Efforts to promote a unified market across Canada have been focused since 1995 through the
Agreement on Internal Trade (AIT), which aims to ac hieve the free flow of products, investment and
labour through, among other things, the mutual recognition of provincial standards and regulations.
4
Developments since the entry in force of the AIT include:
- an agreement in principle, reached on 20 February 1998, to apply procurement
disciplines to municipalities, academic institutions, social service agencies and
hospitals (the MASH sector) in all jurisdicti ons except for British Colombia (the issue
is still under consideration in the Yukon);
- the approval of measures to harmonize corporate registration and reporting
requirements across the country and establish an electronic system for corporate
registration;
- the development of an Internet-based electronic tendering system for government
procurement (Chapter III(4)(iii));  and
                                                     
3For further details on investment conditions maintained at provincial level see WTO (1996a),
Chapter III(4)(iii).
4For details see WTO (1996a), Box II.1.WT/TPR/S/53 Trade Policy Review
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- the preparation of guidelines laying out a process for provinces and territories to
mutually recognize occupational standards and reconcile differences between
standards.
16. Attention is now being focused on the extensio n of procurement disciplines to many Crown
corporations, the completion of an energy chapter and improved disciplines on investment incentives.
The Canadian authorities noted that while negotiations in all of these areas were well advanced,agreements acceptable to all governments had not yet been reached.
17. A report released in February 1998 by the Canadian Chamber of Commerce evaluated the
progress made on fifteen key areas of the AIT.
5  According to the report, the Canadian market for
telecommunications services was largely barrier- free;  the sole remaining exemption from the
obligations of the Telecommunications Act for Sa skatchewan's Crown telephone company was being
phased out.  On government procurement, the report noted the introduction of a national electronic
tendering system, but said that agreement had not been reached on reducing the list of excluded
Crown corporations and services.  Some progress had been made in agriculture and food, with most
barriers to interprovincial trade in alcoholic be verages eliminated, but impediments to trade and
competitiveness remained (these remaining impedime nts have been the subject of public consultations
in 1997 and 1998).
18. The report was critical of the continuous exclusion of financial services from the AIT
(Chapter IV(5)).  It also questioned the actual working of the AIT's investment provisions and pointed
out the need for clearer rules in this area.  According to the report, numerous restrictions still limited
the extraction and processing of raw resources to only local operators, to the considerable
disadvantage of fish processing plants, sawmills and processors in other provinces and territories.
19. The AIT contains a formal dispute settlement mechanism accessible to governments and the
private sector.  According to the Committee of Ministers on Internal Trade, early indications are that
the mechanism has been working well at the initial stages.  Internal trade representatives report that
they have been able to deal successfully with indi vidual complaints at the first, consultative stage in
the process.  The later stages in the process, involv ing formal panel review have yet to be utilized.  As
of mid-1998, a total of 44 complaints had been filed.  The majority of complaints were underChapter Five - Procurement (28 cases), and Chapter Seven - Labour Mobility (10 cases).
(3) P
OLICY OBJECTIVES AND IMPLEMENTATION
(i) General considerations
20. Canada regards increasing trade and investment flows as a key element of its economic
development strategy, both because of its potential to boost growth and for its capacity to create jobsand diversify markets.  The authorities have noted that an extra Can$1 billion in exports creates, in the
medium term, 6,000 to 8,000 new jobs in Canada.  As only 100 companies account for over half of
the country's total exports, the Government has set a goal of doubling the number of active Canadian
exporters by the year 2000.
6
21. The Canadian authorities have pointed out the significant increase over the last decade in
foreign direct investment (FDI) to and from Canada (Chapter I(3)).  In their view, both inward and
                                                     
5Canadian Chamber of Commerce (1998a and 1998b).
6Industry Canada and Department of Foreign Affairs and International Trade (1998).  Starting in 1998,
this publication (CIBS) is only available on the Internet as constant revisions made necessary the use of anelectronic design.Canada WT/TPR/S/53
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outward FDI had stimulated economic growth and jo b creation in Canada:  inward FDI had increased
capital formation and enhanced technology flows, while outward FDI provided access to markets, and
improved the productive capacity and competitive position of Canadian enterprises.7  The authorities
consider it important to reverse the country's declining global share of inward FDI, and have thus
adopted an investment strategy that seeks, among other things, to market Canada’s advantages for
international investment, target specific multina tional enterprises, assist small and medium-sized
enterprises to seek foreign partners, and address factors that might be of concern to investors.8  The
authorities consider that Canada's comparative advantages as an investment destination include lower
costs relative to Europe and the United States, a skilled labour force, abundant resources, excellent
infrastructure, and access to the NAFTA market.
22. Canada follows a multi-track policy approach to international trade and investment relations
in which multilateral, regional and bilateral arrang ements are intended to play mutually reinforcing
roles.  Canada's ultimate goal is for a world in which goods, services and investment flow freely
across national borders.  An effective multilateral system of universal membership, encompassing
both trade and investment disciplines, is seen as vital to ensure stable economic growth, and the best
means to provide a secure and fair international environment for Canadian firms operating abroad and
for attracting foreign investment to Canada.9
(ii) The World Trade Organization
23. Canada is a founding member of the Worl d Trade Organization, the WTO Implementation
Act of November 1994 having given the WTO Agreement legal effect in Canadian law.  The Act did
not touch on the balance between federal and sub-federal legislation and policy competence.
Table II.1 provides an overview of the notifications made by Canada to the WTO  since mid-1996 in
the context of the implementation of the Marrakesh Agreement.
Table II.1
Canada's notifications under WTO Agreements, May 1996 - September 1998
WTO document (date) – latest if periodic
notifications requiredDescription of requirement
Agriculture (Agreement on)
Article 16.2 G/AG/N/CAN/18 (17.11.97). Measures concerning possible negative
effects of the reform programme
Article 18.2 G/AG/N/CAN/19 (06.3.98). Table MA:1 - Tariff and other quota
commitments.
Article 18.2 G/AG/N/CAN/21  (06.3.98). Table MA:2 - Tariff and other quota
commitments.
Articles 5.7 & 18.2 G/AG/N/CAN/20 (06.3.98). Table  MA:5 - Special safeguards.
Article 18.2 G/AG/N/CAN/17 (04.11.97). Table  DS:1 - Domestic support.
Article 18.3 G/AG/N/CAN/8 (09.9.96). Table  DS:2 - Domestic support.
Article 10 & 18.2 G/AG/N/CAN/22 (23.9.98). Tables  ES:1 to ES:3 – Export subsidies.
Anti-dumping (Agreement on Implementation of Article VI of the GATT 1994)
Article 16.4 G/ADP/N/41/CAN (28.8.98). Semi-annual reports.
Article 16.4 G/ADP/N/40 7.7.98). Ad-hoc reports.
Article 16.5 G/ADP/N/14/ADD.6 (27.3.98). Competent authorities.
Table II.1 (cont'd)
                                                     
7WTO documents WT/WGTI/M/3 , 10 February 1998 and WT/WGTI/M/4 , 5 June 1998.
8Industry Canada and Department of Foreign Affairs and International Trade (1998).
9Department of Foreign Affairs and International Trade (1998), section 3.WT/TPR/S/53 Trade Policy Review
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WTO document (date) – latest if periodic
notifications requiredDescription of requirement
Customs Valuation (Agreement on Implementation of Article VII of the GATT 1994)
Article 22.2 G/VAL/N/1/CAN/2 (11.11.97). Changes to legislation, regulations and their
administration.
General Agreement on Tariffs and Trade (GATT) 1994
Article XXIV:7(a) WT/REG38/N/1 (30.7.97) Notification of Free Trade Agreements
(Canada-Chile).
Article XXVIII:5 G/MA/5 (03.10.96). Reservation of right to modify schedule.
General Agreement on Trade in Services (GATS)
Articles III:4 and IV:2 S/ENQ/38 (19.2.97) Notification of enquiry points.
Article V:7 S/C/N/65 (13.11/97) Notification of agreements liberalizing trade
in services.
Government Procurement (Agreement on)
Article XIX:5 No notification received Annual reporting of statistics.
Article XXIV:6(a) GPA/W/61 (5.11.97) Modifications to the appendices of the
Agreement.
WTO Document GPA/1, Annex 3  GPA/W/66/Add.3 (22.4.98) Notification of threshold values.
WTO Document GPA/1/Add.1 GPA/13 (27.3.97) Notification of national legislation.
Import Licensing Procedures (Agreement on)
Article 7.3 G/LIC/N/3/CAN/2 (03.10.97). Replies to questionnaire on procedures.
Rules of Origin (Agreement on)
Article 5.1 G/RO/N/16 (20.2.97). Non-preferential rules.
Sanitary and Phytosanitary Measures (Agreement on the Application of)
Article 7, Annex B Several in series G/SPS/N/CAN (latest of 29.9.98) Transparency of regulations.
State Trading  (Understanding on the Interpretation of Article XVII of the GATT 1994)
Article XVII(4)(a) G/STR/N/3/CAN (29.8.97). Annual state-trading activities.
 Subsidies and Countervailing Measures (Agreement on)
Article 25.1 G/SCM/N/25/CAN (23.10.97). Annual report on subsidies.
Article 25.11 G/SCM/N/40/CAN (28.8.98). Report on countervailing actions:  semi-
annual.
Article 25.11 G/SCM/N/20 (21.06.96). Report on countervailing actions:  Ad hoc .
Article 25.12 G/SCM/N/16/CAN & ADD.4 (18.04.97 & 3.02.97). Competent authorities.
Article 32.6 G/SCM/N/1/CAN/3 (6.06.97). Incorporation of the Agreement in national
legislation.
Technical Barriers to Trade (Agreement on)
Articles 2.9 Several in series G/TBT/NOTIF.96, 97 & 98. Proposed and adopted technical regulations.
Textiles and Clothing (Agreement on)
Article 2.1 Several in series G/TMB/N/62/ (latest of 29.01.97). Notification of restrictions in force.
Articles 2.8 & 2.11 Several in series G/TMB/N/214 (latest of 20.06.97). Lists of products included in the integration
process.
Article 2.15 G/TMB/N/316 (16.01.98). Ad hoc  elimination of quotas.
Article 2.17 G/TMB/N/325 (04.05.98). Administrative arrangements.
Article 2.18 G/TMB/N/312 (11.12.97). Improvements in market access.
Trade-Related Aspects of Intellectual Property Rights (Agreement on)
Article 63.2 Several in series IP/N/1/CAN/ (latest of 28.05.97). Notification of laws and regulations.
Article 63.2 IP/N/6/CAN/1 (15.01.97). Checklist of issues on enforcement.
Source: WTO Secretariat.Canada WT/TPR/S/53
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24. Canada's multilateral trade agenda has involved negotiating with WTO Members to lower
tariffs beyond levels agreed in the Uruguay Round in sectors of importance to Canadian exporters.
This includes the adoption of zero-for-zero tariff elimination on paper and paper products by
additional countries, and acceleration of the commitments already agreed.  Canada is also working
toward establishing new tariff elimination arrangements for oilseeds and oilseed products, wood and
wood products, fish and fish products and non-ferrous metals, such as aluminium.  Further policyinitiatives are intended to prevent the increase of technical and other regulatory trade barriers,
including through mutual recognition agreements (Chapter III(3)).  The authorities noted that Canada
is participating in all aspects of the WTO work programme and supports WTO work on trade and
environment.
25. The Canadian authorities are of the view that the core of current work in the WTO should be
implementing the built-in agenda agreed in Marrakesh, and continuing to develop the work
programme agreed in Singapore.  This work should be pursued together with the preparations for a
new round of negotiations, as in their view implementation provides a sounder ground to further
work.  Canada has explored a so-called "cluster approach" for future trade talks that would group
complementary issues for negotiation as distinct packages with a view to identifying areas whereearly agreement might be possible and thus maintain momentum and provide periodic indications of
success.  For Canada, potential future negotiations should address issues such as reducing tariffs on
industrial goods;  adopting more efficient customs procedures;  and addressing factors affecting
investment and the development of multilateral rules on competition policy.  Canada also aims to
develop an international trade and investment fr amework for cultural industries that would maintain
its freedom to preserve and promote cultural diversity and sovereignty.  Further issues include
reducing impediments caused by the arbitrary application of standards and regulations, while guardingagainst the erosion of rights to regulate for reasons of public health, consumer safety, social policy
and other public interests.
26. Canada considers the relationship between trade liberalization, economic growth, and core
labour standards as positive and mutually reinforcing, and supports increased cooperation between the
WTO and the International Labour Organization in promoting the ILO Declaration on FundamentalPrinciples and Rights at work.  Given their protectionist potential, Canada is opposed to the use of
trade measures to enforce core labour standards.  Canada believes that more needs to be done to
ensure the actual participation of developing countries in the multilateral trading system,
notwithstanding the fact that the Uruguay Round made it possible for them to gain better access to
world markets.  Greater efforts must also be made to increase transparency in conducting negotiationsand in the day-to-day work of the WTO, as well as to enhance consultations with representatives of
civil society.
27. Canada participates in the Information Technology Agreement (ITA), which entered into
force in July 1997.  The Agreement covers six main product categories and provides for the
elimination of duties on an MFN basis in four equal rate reductions ending on 1 January 2000;however, participants may implement the cuts earlier, as has been done by Canada on a number of
products.
10  In early 1998, Canada and the other participants in the ITA began considering proposals
for expanding the product coverage of the ITA;  in this connection, Canada proposed several additions
to the product list.  Although this work was expected to be completed by June 1998, it has proved
necessary to continue discussions into the autumn ;  Canada is committed to continue the effort to
reach a consensus.
                                                     
10WTO document WT/MIN(96)/16, 13 December 1996. Ch apter III(2)(i) describes Canada's schedule
of concessions under the ITA.WT/TPR/S/53 Trade Policy Review
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28. Canada participated in the WTO negotiations on the Agreement on Basic
Telecommunications concluded in February 1997 and in the negotiations on a financial services
agreement concluded in December 1997.  Canada has been actively involved in examining accessions
to the WTO to secure more open, non-discriminatory access for Canadian exports of goods and
services abroad, and contributing to trade liberalization more broadly.  It expects applicants to bind
their tariffs and their commitments in the four "mode s" of services trade, and to join the various
zero-for-zero and harmonization initiatives developed by WTO Members, including the ITA.
(iii) Regional and bilateral arrangements
29. Canada’s other main trade and economic policy priority is managing the relationship with the
United States. As noted by the Canadian Government, this is an imperative created by the process of
growing market integration between the two countries, initiated more than three decades ago underthe Auto Pact, and which has resulted in one of the most complex and substantial economic
relationship between any two trading partners, the world's largest two-way trade relationship.  The
authorities are also seeking to promote stronger export diversification, both in terms of products and
destinations, through regional and bilateral agreements.  The authorities consider that regional
agreements, if constructed with due regard to WTO obligations, can complement and assist themultilateral system by demonstrating new avenues for liberalization and defining the role and benefits
of the WTO.
11  In turn, the multilateral trading system is seen as the basis of Canada's regional and
bilateral relationships as it helps ensure cooperation within and between regional systems.  Canada
believes that further non-discriminatory tariff reductions would defuse tensions between regional and
multilateral obligations.
(a) Relations in North America
30. Canada has continued to pay great attention to the implementation of the North American
Free Trade Agreement (NAFTA).  In April 1998, Canada and Mexico, and Mexico and the United
States agreed to eliminate tariffs by 1 Augu st 1998, on some items that would otherwise have
remained dutiable until 2003.  The products covered included certain textiles, chemicals, antibiotics,
watches and toys as well as certain steel and wire products (Chapter III(2)(i)).
31. Canada believes that the use of trade remedies between integrated markets is inappropriate
and has sought to address the continued application of anti-dumping, countervailing and safeguards
legislation to Canadian-U.S. trade (Chapter III(3)(ii )).  Concerning the possible enlargement of the
NAFTA, Canada's position is that the Agreement is open to any country able and willing to undertake
the NAFTA obligations, including those in the environment and labour side-agreements, subject to the
agreement of NAFTA's existing members.  Canada has also indicated its strong preference for earlyinitiation of negotiations leading to Chile's accession to NAFTA.  To facilitate Chile's alignment with
NAFTA rules and practices, Canada and Chile have signed a free-trade agreement (section (b) below).
32. Building on the 1995 "Accord on our Shared Border" between Canada and the United States,
the two partners have pursued several initiatives to speed up road, rail and sea transit, as well as
in-transit pre-clearance at Canadian airports.  The Canadian authorities have noted that the NewExporters to Border States programme has helped more than 8,500 companies make their first foray
into the U.S. market.
12  The authorities are also developing a process to help Canadian exporters that
have succeeded in more than one region of the United States to "graduate" to other international
markets.  An agreement announced in December 1997 will allow Canadian truckers to deliver goods
to the United States as well as perform local pick-up and delivery services of international cargo while
                                                     
11WTO document WT/MIN(98)/ST/73, 18 May 1998.
12Department of Foreign Affairs and International Trade (1998), section 4.Canada WT/TPR/S/53
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in that country;  the agreement is expected to result in significant efficiency gains as some 67% of
goods crossing the Canadian-U.S. border are transported by truck.
33. Bilateral trade flows between Canada and the United States have remained largely free of
problems.  Since 1996, frictions have been confined to areas such as softwood lumber, grains,
supply-managed farm products, the Canadian cultural industry, and U.S. extra-territorial legislation
(section (4) below).
(b) Other arrangements in the Americas
34. Canada has continued its involvement in the Free Trade Area of the Americas (FTAA)
process.  The Canadian authorities were satisfied with the outcome of the third meeting of the FTAA
Ministers in Belo Horizonte, Brazil, in May 1997.  The meeting decided that FTAA negotiations
should formally start in mid-1998, that the FTAA should co-exist with preferential agreements, suchas the NAFTA, and that countries may negotiate the FTAA individually or as members of such
agreements. At the fourth meeting in San Jose, Costa Rica, in March 1998, the Ministers created the
Trade Negotiations Committee (TNC) to guide the work of the negotiating groups and decide on the
overall architecture of the agreement and institutional issues.  Nine negotiating groups were
established covering market access;  investment;  services;  government procurement;  dispute
settlement;  agriculture;  intellectual property rights;  subsidies, antidumping and countervailing
duties; and competition policy.  These groups were to begin their work no later than September 1998
and report their results to the TNC no later than the end of October 1999.  Canada supports the launch
of FTAA negotiations as planned regardless of whether the U.S. administration has received fast-track
negotiating authority from Congress.
35. Canada and the MERCOSUR partners (Argentina , Brazil, Paraguay and Uruguay) have held
bilateral discussions regarding the FTAA and, based on this dialogue, they began in 1997 to exploreways to enhance bilateral trade and investment.  In October 1997, Canada presented MERCOSUR
with a proposal for a Trade and Investment Cooperation Arrangement (TICA).  The arrangement
would establish a framework for Canada and ME RCOSUR to collaborate on the FTAA, WTO, and
Cairns Group work programmes; create an advisory council of business representatives; foster
private-sector dialogue; and result in a joint assessment of barriers to trade and investment.  It wouldalso seek to facilitate collaboration on customs matters, conformity-assessment procedures, and
cooperative arrangements in labour and the environment.  Canada signed the TICA in June 1998;  the
implementation of its Action Plan is expected to begin in autumn 1998 and winter 1999.
36. The Canada-Chile Free Trade Agreement (CCFTA) came into force in July 1997 (Box II.2).
The Agreement covers trade in goods and services.  It includes a mutual exemption from the use ofanti-dumping measures between the two countries, and provides for the establishment of a committee
to consult on the use of other trade remedy measures, including further defining subsidy disciplines
and eliminating the need for countervailing measures.  The provisions on investment in the CCFTA
were modelled on those of the NAFTA.
13   Like the NAFTA, the CCFTA requires application of
MFN and national treatment standards in respect of both establishment and subsequent treatment ofinvestments, subject to the ability of the parties to  make or maintain exceptions in sectors or matters
specified in an annex to the treaty.
                                                     
13A notable difference between the investment provisions of the CCFTA and the NAFTA is the
inclusion in the former agreement of provisions permitting Chile to derogate from the provisions on free transferof funds in order to preserve the stability of its currency (WT/WGTI/W/22, 26 January 1998).WT/TPR/S/53 Trade Policy Review
Page 24
Box II.2:  The Canada-Chile Free Trade Agreement
The Canada-Chile Free Trade Agreement (CCFTA) was signed on 5 December 1996 and entered into force
on 5 July 1997.  The Agreement was notified to th e Council on Trade in Goods on 6 October 1997 in
accordance with Article XXIV:7(a) of GATT 1994, and to the Council on Trade in Services on 26 November1997 in accordance with Article V:7(a) of the GATS.  The CCFTA is under examination by the WTOCommittee on Regional Trade Agreements.
The CCFTA is largely modelled on the NAFTA, notably in terms of its structure, scope and coverage, and
customs administration modalities, in particular, the rules of origin (Chapt er III(3)(vii)).  The Agreement
covers trade in goods and services, investment, dispute settlement and two parallel agreements on
environmental and labour cooperation.
In terms of tariff elimination, all trade in industrial products (HS Chapters 25-97) and most trade in fish and
agriculture products (HS Chapters 1-24) are covered.  Ta riffs on most originating goods were eliminated on
5 July 1997 (Chapter III(2)).  Tariffs on some industrial and resource-based goods were to be phased out
over a maximum of five years.  For textiles and apparel ,  the CCFTA provided for a longer tariff phase-out,
of up to six years for Canada, and a special safeguard provision to guard against import surges during thephase-out period.  For agricultural products, Canada re tained its over-q uota tariffs for dairy, poultry and
egg products, while Canadian tariffs were eliminated on implementation of the CCFTA or will be eliminated
by 1 January 2003 for other products.  For products on wh ich tariffs are being gradually eliminated over the
next few years, the second round of cuts was made on 1 January 1998.  The Agreement also allows the
parties to consult and agree on a more rapid phase-out of tariffs.
The CCFTA prohibits the imposition or maintenance of customs user fees.  The Agreement established a
Committee on Trade in Goods and Rules of Orig in and a Customs Sub-Committee to monitor the
implementation of the provisions of the Agreement and to cooperate in ensuring the effective administration
of customs-related provisions.
Canada and Chile have exempted each other from the ap plication of anti-dumping duties, an exemption that
takes effect when the tariff on a good reaches zero in both countries, or on 1 January 2003, whichever is
earlier.  The anti-dumping exemption must be reviewed no later than fi ve years after the en try into force of
the CCFTA. The Agreement also co mmits the parties to proscribe an ti-competitive business conduct and to
cooperate in the enforcement of competition laws.  Canada and Chile retained their respective duty
drawback programmes.
The CCFTA contains two annexes addressing sector-sp ecific provisions for textiles and apparel goods and
for trade and investment in the automotive sector.  The latter ensures that the automotive provisions underthe Canada-U.S. Auto Pact are not affected by the Agreement.  The CCFTA al so provides for specific
provisions on standards for te lecommunications and the est ablishment of a Committee on
Telecommunications Standards.
The CCFTA services provisions apply to all measures affecting cross-border trade in non-financial services
not covered by the Investment Chapter or otherwis e excluded.  This includes measures affecting the
production, distribution, ma rketing, sale and delivery of a service.  The CCFTA prevents the enactment of
any new discriminatory measures, except in the sectors set out in Annex II (e.g. related to air and water
transportation, telecommunications and government securities).
Under the CCFTA, in case of any inconsistency be tween it and other agreements the CCFTA prevails, except
as otherwise provided in the Agreement.  In case of any inconsistency between the CCFTA and the WTOAgreement on Textiles and Clothing, the latter prevails.  The Agreement provides th at a party retains the
discretion to settle any matter arising under the CCFTA or  the WTO Agreement in e ither forum.  A party has
sole recourse to dispute settlement under the CCFTA if it claims that its action is subject to the CCFTA's
Environmental and Conservation Agreements.
The CCFTA established the Free Trade Commission and the FTA Secretariat.  The Commission is to resolve
any disputes that may arise, as well as to supervise the implementation of the Agreement including the work
of the bodies created under it.  The Secretariat is to support the Commission, as well as acting as registrarfor dispute settlement panels and as the depository fo r investor-state disputes.  The Secretariat was to
establish offices in each country.  The Commission met for the first time in January 1998.
Source: WTO documents (series WT/REG 38);  and the Canadian authorities.Canada WT/TPR/S/53
Page 25
37. A work programme comprising eight committees and working groups has been launched to
carry out the implementation of the major elements of the CCFTA.  The first Ministerial level meeting
of the CCFTA Commission took place in January 1998.  In mid-1998, the committees and working
groups were establishing their work programmes and seeking to facilitate the implementation of the
CCFTA in their respective areas.
38. Canada and Chile signed in January 1998 the Convention on the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion.  In view of Chilean plans to reduce MFN tariffs
(WTO, 1997), Canada obtained from Chile a written commitment to maintain a certain margin of
preference if such reductions do take place.
39. Canada grants duty-free treatment to most goods that originate in Caribbean countries
covered by CARIBCAN, an economic and trade development assistance programme for the18 Commonwealth Caribbean countries and territories.
14  With the introduction of the new Canadian
Customs Tariff in January 1998, duty-free product coverage was expanded to include all industrial
products with the exception of textiles, apparel and footwear, and goods subject to MFN rates of duty
over 35% (Chapter III(2)(i)).  Pursuant to a request by Canada, WTO Members decided on
14 October 1996 to extend the CARIBCAN waiver until 31 December 2006 under Article IX of theWTO Agreement.
15  This waived Canada's obligations under Article I of the GATT to the extent
necessary to permit it to provide duty-free trea tment in accordance with the CARIBCAN initiative
without extending the same treatment to products of other parties.
(c) Canada's relations with Europe
40. Relations between Canada and the European Union are managed through the WTO, the 1976
Framework Agreement for Commercial and Ec onomic Cooperation, and the 1990 Declaration on
Canada-EC Relations.  To enhance these arrangements, Canada and the EU signed in December 1996a Joint Political Declaration and its Action Plan to, among other things, expand trade and investment
relations, increase joint action on foreign policy and security, and enhance cooperation on global
issues.  Three Canada-EU summit meetings have been  held since the Action Plan was put into effect.
Canada and the EU have initiated a draft agreement regarding the application of competition laws
which provides a framework for future enforcement cooperation and coordination.  The agreement islikely to come into force early in 1999.
41. In December 1997, the parties agreed under the 1996 Action Plan to an Agreement on
Customs Cooperation and Mutual Assistance to simplify and harmonize customs procedures and
enhance the capacity to deal with violations of customs law.  The two parties also signed at that time
the Agreement on Humane Trapping Standards.  Signature of the Canada-EU Mutual RecognitionAgreement on Conformity Assessment for Regulated Products was announced in May 1998.  The
Canadian authorities consider that the Agreement on Humane Trapping has restored secure access to
the EU market for Canadian fur products, while the second Agreement should reduce costs and
facilitate market access in Europe for Canadian producers of telecommunications terminal equipment,
information technology equipment, medical devices, pharmaceuticals, and recreational boats.
42. Other elements of the 1996 Action Plan include common endeavours in the WTO in areas
such as trade and investment, competition, accessions, services, and standards as well as a joint trade
                                                     
14Anguilla, Antigua-Barbuda, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, the
Cayman Islands, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Christopher and Nevis, St. Lucia,St. Vincent and the Grenadines, Trinidad and Tobago, and the Turks and Caicos Islands.  In 1996, Jamaica andGuyana accounted for 80% of total Canadian imports from CARIBCAN beneficiaries.
15WTO document WT/L/185, 18 October 1996.WT/TPR/S/53 Trade Policy Review
Page 26
study on ways to facilitate trade by identifying barriers in specific sectors and recommending ways to
remove them.  An internal working draft of the study was tabled at the Canada-EU Summit in
May 1998.  In addition, Statistics Canada and Eurostat have begun work on a project that will help to
remove discrepancies between Canadian and EU trade data.
43. Canada considers that the proposed Transatlantic Economic Partnership between the
European Union and the United States illustrates to the importance of pursuing the full potential of the1996 Action Plan, including the provision for case-by-case trilateralization of subjects under the
EU-U.S. New Transatlantic Marketplace.  Canada also believes that convergence of separate bilateral
trade initiatives involving Canada, the EU, Mexico a nd the United States is desirable in its own right
given the increasing integration of the North American market under the NAFTA and the fact that
such an initiative could act as a catalyst for broader, multilateral trade liberalization in the WTO.  TheCanadian authorities indicated that discussions on these issues with the EU and the United States
would continue as work on the Transatlantic Economic Partnership progressed.
44. Canada is also exploring the possibility of pursuing a free-trade agreement with the countries
of the European Free Trade Association (EFTA).
16  As a first step in this process, Canada signed
Trade and Economic Cooperation Arrangements with Norway and Switzerland in December 1997 andwith Iceland in March 1998.   Initial exploratory discussions were held between Canada and the
EFTA countries in the spring of 1998 to exchange preliminary views on the possible scope of a
free-trade agreement.  In late 1998, Canada was engaged in a broad domestic consultative process to
determine Canadian interests and objectives in any such agreement.
(d) Canada's relations in Asia and Oceania
45. Through its membership in the Asia Pacifi c Economic Cooperation (APEC) forum, Canada
has sought to strengthen its trade and investment links with countries in Asia and Oceania.
17  T h e
Canadian authorities believe that, given the size of the APEC market, the commitment on the part of
APEC members to pursue sectoral liberalization will be a significant catalyst for further multilateral
liberalization in the context of the WTO.  In May 1996, along with the other APEC members, Canada
presented its APEC Individual Action Plan outlining its trade and investment climate, and its
intentions on future trade and liberalization initiatives.  Canada chaired APEC in 1997, and hosted theannual Ministerial and Leaders' meeting in Vancouver in November that year.
18  One of Canada's
priorities throughout the year was to pursue initiatives to enhance access to key markets for traders
and investors, particularly the "early voluntary sectoral liberalization" process.  At the Vancouver
meeting, APEC ministers and leaders agreed to pursue trade liberalization in 15 sectors.  This
included developing appropriate arrangements for nine of the sectors, with details to be finalized in1998 and adoption of liberalization measures in 1999;  further preparatory work was to be undertaken
throughout 1998 for the other six sectors.
19
                                                     
16The EFTA members are Iceland, Liechtenstein, Norway and Switzerland.
17The other members of APEC are Australia;  Brunei;  Chile;  China; Chinese Taipei;  Hong Kong,
China;  Indonesia;  Japan;  Republic of Korea;  Malaysia;  Mexico;  New Zealand;  Papua New Guinea;the Philippines;  Singapore;  Thailand;  and the United States.  Peru, Russia and Viet Nam were expected tobecome members in late 1998.
18APEC documents are available on the Internet, URL:  www.apecsec.org.sg.
19The nine first sectors comprised chemicals, environmental goods and services, forest products,
medical equipment and instruments, toys, energy sector, fish and fish products, gems and jewellery, andtelecommunications equipment;  the other six sectors covered automotive products, civil aircraft, fertilizers,food, natural and synthetic rubber, and oilseeds and oilseed products.Canada WT/TPR/S/53
Page 27
46. Canada and Japan have sought to promote the development of trade and economic
cooperation, under the 1976 Framework for Economic Cooperation, through mechanisms such as the
annual meetings of the Joint Economic Committee and the Canada-Japan Business Conference.  In
November 1996, a new Canada-Japan Agenda for Cooperation was announced, which reaffirmed a
common commitment to facilitate the expansion of trade and investment by improving transparency
and market access.  In  1997, Canada, along with the EU and the United States, concludednegotiations with Japan in settlement of its obligations stemming from findings of the WTO panel on
Japan's liquor tax regime.  Canada and Japan also reached an agreement in principle on revisions to
the Canada-Japan Double Taxation Convention.  This revision will, among other things, allow for the
mutual exemption of local taxes on international transport operations.
47. In January 1998, Canada released its sixth Action Plan for developing trade and economic
relations with Japan.  The Plan identifies specific market opportunities for the following priority
sectors:  agri-food and fisheries products;  building products;  information technologies;  health care
and medical services;  and consumer products including furniture, sporting goods, giftware, and
tourism.
48. The Canada-Israel Free Trade Agreement (CIFTA) entered into force in January 1997
(Box II.3).  The Canadian authorities consider that the CIFTA "levels the playing field" for Canadian
producers competing against their European and American counterparts, as Israel already has
free-trade agreements with the European Union and the United States.
20  As provided by the
Agreement, Canada and Israel were to begin discussions in 1998 to further liberalize trade in
agriculture and food products.  The CIFTA extends to the Palestinian Territories through Israel's
common customs territory with the West Bank and Gaza.  Discussions were ongoing on how to
provide the same preferential trade terms to g oods originating from these two areas as goods that
originate in Israel.  Further consultations with the Palestinians to finalize a Memorandum of
Understanding on enhancing trade and economic cooperation are expected to be undertaken in 1998.
(e) Other trade and investment arrangements
49. Canada's GPT scheme provides preferential tariff treatment for imports from developing
countries and countries in transition.  In March 1994, Canada's GPT legislation was extended for tenyears.  While the scheme now includes most industrial and agricultural items, textiles, clothing and
footwear are only partly covered, and agricultural products under tariff quotas are excluded.  Further
reforms to the GPT began in January 1996 to reduce most GPT rates to levels at least two-thirds of
applied MFN rates by 1999;  however, as a result of the simplification of the tariff in 1998
(Chapter III(2)),  most final GPT rates were implemented in 1998 rather than in 1999.  GPT productcoverage has also been expanded by some 218 tariff lines.  The documentation requirements for
meeting GPT rules of origin were simplified in 1997.
50. In late 1998, Canada was examining improvements to the preferential market access offered
to least developed countries.  This included expanding the duty-free product coverage under the Least
Developed Country Tariff treatment to cover all products except textiles, apparel, and footwear andthe out-of-quota tariff rates for tariffied agricultural goods.  The rules of origin were also under
examination to allow least developed countries to "cumulate" a percentage of inputs with developing
countries.  The authorities noted that no consideration was being given to the introduction of a
graduation scheme.
51. The authorities indicated that in 1997 Canadian imports entering under GPT rates of duty
totalled Can$5.3 billion, of which Can$2.4 billion entered duty free.  That year the main beneficiary
                                                     
20Department of Foreign Affairs and International Trade (1997), section 5.WT/TPR/S/53 Trade Policy Review
Page 28
of the GPT was China, which accounted for almost half of all imports under GPT rates.21  In 1996, the
latest year for which data are available, the GPT utilization rate (imports benefiting from GPT rates
relative to total imports from GPT beneficiaries) was 74%.
Box II.3:  The Canada- Israel Free Trade Agreement
The Canada-Israel Free Trade Agreement (CIFTA) was signed on 31 July 1 996 and entered into force on
1 January 1997.  Canada and Israel made a join t communication to the WTO Committee on Regional Trade
Agreements in October 1996, informing Members of th e signature of the Agreement and outlining its content.
It was notified to the Council on Trade in Goods on 13  January 1997, in accordance with Article XXIV:7(a)
of GATT 1994.  The Agreement is under examination by the WTO Committee on Regional Trade Agreements.(The text of the CIFTA is reproduced in WTO document WT/REG31/2, 23 January 1997.)
The CIFTA covers industrial and agricultural products.  Customs duties on all originating industrial
products were eliminated on 1 January 1997, with the exception of two products where the duties are to be
phased out over three years, as well as casein, albumins and related products (HS 3501 and 3502) which arenot subject to liberalization commitment.  In the case of agriculture products, specific concessions, in theform of preferential duties, tariff-rate quotas, or bot h, for a broad range of products, are listed in two
annexes to the Agreement.  The two parties have indicate d that tariff concessions for the agriculture and fish
sectors involve about 80% of curre nt agri-food trade between them .  However, Canadian supply-managed
dairy, poultry and egg products are excluded from the elimination of tariffs under the Agreement.  The
parties were to renew discussions within two years with a view to further liberalization of agri-food trade.
The CIFTA establishes a Canada-Israel Trade Commission that is to meet at least once a year to monitor the
implementation of the Agreement.  The CIFTA provides for a binding dispute settlement process to deal with
any matter alleged to be inconsistent with the obligations of the Agreement.  If a dispute relates to
obligations under the WTO Agreements and the CIFTA, the complaining party must elect to pursue thematter in one forum to the exclusion of the other.  The Agreement stipulates that rights and obligations
relating to standard-related measures, sanitary and phytosanitary measures, government procurement,subsidies and countervailing measures, anti-dumping measures, balance-of-payme nts issues and intellectual
property are to be governed by the relevant WTO Agreement.
CIFTA rules of origin are based on changes in tariff classification under the HS (Chapter III(3)(vii)).
The parties agreed to include each other in global  safeguard actions only under defined conditions.
Quantitative trade restrictions and other import or export non-tariff barriers are not allowed, except as
explicitly provided for under the Agreement (e.g. provincial export restrictions on logs and fish).  The CIFTAincludes provisions on competition law, including requirements to have measures to proscribe private anti-competitive business conduct, to cooperate on competiti ve law enforcement in the free-trade area, and also
addresses the issue of state enterprises and monopolies.  The Agreement does not contain specific disciplines
in the area of trade in services.
Source:  WTO documents (series WT/RE31).
52. The authorities consider international investment rules as essential to provide a stable,
transparent and open environment for international inve stment flows.  Canada is thus participating in
the development of those rules in fora such as the WTO, the Organization for Economic Cooperation
and Development (OECD), and as part of regional agreements.  The authorities are also seeking to
                                                     
21In 1997, the ten largest beneficiaries of the GPT in terms of value of imports under the scheme were
(share of Can$5.3 billion total between parenthese s):  China (48.0%), Republic of Korea (11.7%),
Thailand (6.2%), Brazil (4.3%), Mala ysia (4.2%), India (3.1%), Indonesia (3.0%), Hong Kong, China (2.6%),
the Philippines (1.7%) an d South Africa (1.3%).Canada WT/TPR/S/53
Page 29
introduce effective disciplines in the context of the FTAA and APEC.  Canada's strategy to improve
rules on foreign direct investment also involves ne gotiating bilateral foreign investment agreements.
53. Canada has participated actively in negotiations on a Multilateral Agreement on Investment
(MAI) within the OECD.  In Canada's view, a satisfactory MAI would complement the investment
rules of the NAFTA, the existing but limited rules of the WTO, and bilateral investment agreements.
The authorities attached great importance to the general exceptions and country-specific reservationsfrom MAI disciplines that the agreement would includ e, and which would allow Canada to ensure that
the Government preserves its full freedom of action in areas such as health care, social programmes,
education, aboriginal programmes, programmes for minorities and culture.  Canada supports a narrow
interpretation of "expropriation" in the MAI to ensu re that legislative actions in the public interest,
even those with adverse profitability consequences for investors, are not considered expropriationsrequiring compensation (section (4) below).  The au thorities also seek the inclusion in the MAI of
provisions to provide greater protection to Canadian investors and their investments abroad from the
extraterritorial application of domestic jurisdiction.
54. The authorities regard the MAI as a first step towards Canada's ultimate objective of
establishing a world-wide investment agreement negotiated through the WTO.  Canada believes thatthe WTO is the logical destination, and most effective home, for a multilateral agreement on
investment.
22  Canada thus supported the establishment of the WTO Working Group on Trade and
Investment at the 1996 Singapore Ministerial Meeting, and has played an active role in the Group's
activities.  Canada has proposed that the Working Group focuses its work on possible gaps in existing
international instruments, and the advantages and di sadvantages of entering into bilateral, regional or
multilateral investment agreements.23  Canada views truly multilateral rules on investment as the most
effective means to build upon the gains secured in bilateral investment agreements.
55. On a bilateral, reciprocal basis, foreign investment promotion and protection agreements
(FIPAs), mostly with developing countries and coun tries in transition, are designed to protect and
promote foreign investment through legally binding rights and obligations concerning, inter alia ,
national and MFN treatment, expropriation, transfer of funds, TRIMs, transparency, and
investor-to-state and state-to-state dispute settlement mechanisms.  Canada has negotiated 24 of theseagreements since 1989.  Of these, FIPAs were signed in 1997 with Armenia, Croatia, Lebanon,
Thailand and Uruguay;  a FIPA was signed in  1998 with Costa Rica.  In mid-1998, Canada was
negotiating FIPAs with other countries includin g, Brazil, China, Cuba, India and Russia.
(4) D
ISPUTE SETTLEMENT
56. The Canadian authorities see the WTO dispute settlement system as one of the most
significant achievements of the Uruguay Round.24  They consider that the system remains efficient
despite its extensive use and has proved capable of settling even the most sensitive issues, with the
important exception of the case concerning the U.S. Helms-Burton Act, in which Canada participated
as a third party (see below).  In their view, even in this case the system retained its relevance as an
instrument of last resort.  Canada is committed to using the WTO dispute settlement mechanism toensure that its exporters do not face barriers inconsistent with the WTO Agreements or when systemic
WTO issues are at stake.  As a result, it has become an active user of the mechanism as an affected
party.
                                                     
22Statement by Canada on the MAI, OECD Ministerial Meeting, April 1998.
23WTO document WT/WGTI/W/19, 11 December 1997.
24Department of Foreign Affairs and International Trade (1998), section 2.WT/TPR/S/53 Trade Policy Review
Page 30
57. Over the last two years, Canada has participated in the proceedings of five panels established
to examine measures maintained by other WTO Members (Table II.2).25  All such cases involved
agricultural and food products of export importan ce to Canada.  Canada has also participated in
several consultations with trading partners concerning measures affecting agricultural and food
products, textiles and clothing, motor vehicles and other products.  Canada has reserved third-party
rights to present arguments to some nine panels.
58. Within the WTO, Canada's trading partners have questioned Canadian measures on patent
protection for pharmaceuticals, fluid milk access and dairy products pricing, film distribution, and
periodicals (Table II.2 and Chapters III(5)(i), IV(2)(iv) and IV(5)(iii).
Table II.2
Dispute-related WTO matters involving Canada, September 1998
Subject Against/raised by: Actions taken (date) WTO document
Issues raised against Canada
Certain measures concerning
periodicalsCanada/U.S. Consultations requested (April 96);  panel
established (June 96);  case appealed (April 97);
Panel and Appellate Body reports adopted
requesting Canada to bring the measures intoconformity with GATT 94 (July 97);  agreement
for Canada to bring its measures into conformity
by October 98 (September 97);  status reports byCanada (March, April, July, September 98).WT/DS31/1;
WT/DS31/R;
WT/DS31/R/Cor.1;
WT/DSB/10;WT/DS31/9 &
Add.1, 3, 4.
Measures affecting the export of
civilian aircraft Canada/Brazil Consultations requested (March 97);  panel
requested (July 98).WT/DS70/1, 2;
WT/DS71/1.
Measures affecting the importation of
milk and the exportation of dairy
productsCanada/U.S.,
New ZealandConsultations requested by U.S. and joined by
Australia, Japan (October 97);  panel requested
by the U.S. (February 98).
Consultations requested by New Zealand and
joined by Japan, U.S. (December 97);  panel
requested by New Zealand (March 98).
Panel established, Australia and Japan reserved
third-party rights (March 98);  panel constituted
August 98).WT/DS103/1-5;
WT/DS113/1-5;
WT/DSB/M/44.
Patent protection of pharmaceutical
productsCanada/EU joined by
Australia, U.S.,
SwitzerlandConsultations requested (December 97-
January 98).WT/DS114/1-4.
Measures affecting film distribution
servicesCanada/EU Consultations requested (January 98). WT/DS117/1.
Measures affecting the automotive
industryCanada(EU, Japan Consultations requested (July, August 98). WT/DS139/1;
WT/DS142/1.
Canada as affected party:  panels
Trade description of scallops EU/Canada, Chile,
Iceland, Japan, PeruConsultations requested (May 95); panel
established (July 95); mutually agreed solution
(July 96).WT/DS7/1-5;
WT/DS7/7&Corr.1;
WT/DS7/12.
Duties on imports of cereals EU/Canada Consultations requested (June 95);  panel
established (October 95);  interim settlement
reached.WT/9/1.
Table III.2 (cont'd)
                                                     
25Cases not settled under the Tokyo Round Agreements lapsed at the end of 1996 when the
corresponding agreements expired.  Parties wishing to settle these disputes had to initiate new cases under WTOprovisions.Canada WT/TPR/S/53
Page 31
Subject Against/raised by: Actions taken (date) WTO document
Taxes on alcoholic beverages Japan/Canada, EU, U.S. Consultations requested (July 95); panel
established (September 95); Panel Report
circulated (July 96); case appealed (August 96);Japan informed of its intention to negotiate
implementation period (November 96);  status
reports by Japan (September, October,November 97);  solution on modalities for
implementation (January 98).WT/DS10/1-20.
Import restrictions on salmon Australia/
CanadaConsultations requested (October 95);  pane l
established (April 97);  Panel Report (June 98);
appeal by Australia (July 98).WT/DS18/1-6;
WT/DS18/R.
Measures concerning meat and meatproducts (hormones)EU/Canada, U.S. Consultations requested (January, June 96);
panels established (May, October 96); Panel
Reports circulated (August 97); reports appealed(September 97);  Appellate Body Report and
Panel Reports adopted (February 98);  arbitrator
appointed (April 98);  EU to implement panelruling within 15 months from February 98.WT/DS48/1-14;
WT/DS48/R/CAN.
Export financing for aircraft Brazil/Canada Consultations requested (June 96);  panel
requested (September, October 96, July 98).WT/DS46/1-6.
Consultations requested by Canada
Measures concerning bottled water Korea/Canada joined
by U.S. and EUConsultations requested (November 95);
mutually agreed solution (April 96).WT/DS20/1;
WT/DS20/6.
Export financing programme for
aircraftBrazil/Canada Consultations requested (June 96);  report on
consultations (January 97).WT/DS46/1, 4;
WT/DSB/M/28
Quantitative restrictions on imports of
agricultural, textile and industrial
productsIndia/Australia,
Canada, EU,
New Zealand,
Switzerland and U.S.joined by othersConsultations requested (July-August 97);
Canada and India reached mutually agreed
solution (March 98).WT/DS92/1-8..
Measures affecting imports of wood
and conifersEU/Canada Consultations requested (June 98). WT/DS137/1.
Measures affecting the import of
cattle, swine and grainU.S./Canada Consultations requested (September 98). WT/DS144/1.
Consultations joined by Canada
Measures concerning the shelf-life of
productsKorea/U.S. joined by
Canada and JapanConsultations requested (May, June 95);
mutually agreed solution (July 95-September 96).WT/DS5/1, 2, 4, 5 &
addenda/revisions.
Restrictions on imports of textile andclothing productsTurkey/Hong Kong
joined by Canada andothersConsultations requested (February, March 96). WT/DS29/1-9.
Certain  measures affecting trade and
investment in the automotive sectorBrazil /Japan and U.S.
joined by Canada andothersConsultations requested (July-August 96). WT/DS51/1-7;
WT/DS52/1-5.
Certain measures affecting theautomobile industryIndonesia/EU,  Japan,
U.S. joined by othersincluding  CanadaConsultations requested (November 96);  panels
later established but Canada not involved. WT/DS54/1-6;
WT/DS55/1-6;WT/DS59/1-6.
Customs classification of certaincomputer equipmentEU/US joined by
Canada and KoreaConsultations requested (November 96); panel
established but Canada not involved.WT/DS62/1-4.
Measures affecting imports of pork Japan /EU joined by
CanadaConsultations requested (January 97). WT/DS66/1-3.
Measures affecting pork and poultry Philippines/U.S. joined
by Canada and EUConsultations requested (April 97);  mutually
agreed solution between Philippines and U.S.
(March 98).WT/DS74/1-5.
Table II.2 (cont'd)WT/TPR/S/53 Trade Policy Review
Page 32
Subject Against/raised by: Actions taken (date) WTO document
Measures affecting the exportation of
processed cheeseEU/US joined by
Australia, Canada and
JapanConsultations requested (October 97).  WT/DS104/1-4.
Tariff rate quota for imports of
groundnutsUS/Argentina joined by
Canada, JapanConsultations requested (January 98). WT/DS111/1-3.
Harbour maintenance tax US/EU joined by
Canada, Japan, NorwayConsultations requested (February, March 98). WT/DS118/1-4.
Countervailing duties on steel
productsU.S./EU Consultations requested (July 98). WT/DS138/1, 2.
Cases in which Canada has reserved third-party rights to participate in panels
Measures affecting desiccated coconut Brazil/Philippines Panel established (March 96);  Panel Report
circulated (October 96);  adoption of Appellate
Body Report (March 97).WT/DS22/1-11;
WT/DS22/R;
WT/DS22/AB/R..
Regime for the importation, sale and
distribution of bananasEU/Ecuador,
Guatemala, Honduras,
Mexico, U.S.Panel established (May 96), Panel Report
circulated (May 97); adoption of Appellate
Body Report (September 97);  arbitration award
(January 98).WT/DS27/1-16;
WT/DS27/R;
WT/DS27/AB/R.
Measures affecting imports of wovenwool shirts and blousesUS/India Panel established (April 96);  Panel Report
circulated (January 97); adoption of Appellate
Body Report (May 97).WT/DS33/1-5;
WT/DS33/R;
WT/DS33/AB/R.
Export subsidies in respect of
agricultural productsHungary/Argentina,
Australia, New
Zealand, U.S.Panel established (February 97);  agreement for
Hungary to seek a waiver for the subsidies
(July 97).WT/DS35/4- 7;
WT/DSB/10.
The Cuban Liberty and DemocraticSolidarity ActUS/EU and its member
StatesPanel established (November 96);  suspension o
f
panel proceedings (April 97);  panel lapsed
(April 98).WT/DS38/2-6.
Taxation of foreign film revenues Turkey/U.S. Panel established (February 97);  mutually
agreed solution (July 97).WT/DS43/2-3.
Anti-dumping investigation regarding
Portland cementGuatemala/Mexico Panel established (March 97);  Panel Report
circulated (June 98).WT/DS60/2-8, R.
Taxes on alcoholic beverages Korea/EU, U.S. Panel established (October 97);  Panel Report
circulated (September 98).WT/DS75/6-7, R.
WT/DS84/4-5, R.
Taxes on alcoholic beverages Chile/EU Panel established (November 97);  panel
constituted (July 98).WT/DS87/5, 6.
Source: WTO Secretariat.
59. Against a background of strong commercial rivalry between Canada's Bombardier and
Brazil's Embraer, both important manufacturers of regional jets, Canada requested consultations inJune 1996 concerning Brazil's support for exports of regional jets.  Brazil requested consultations in
March 1997 on Canadian measures related to the export of civilian aircraft.
26  In Brazil's opinion,
Canada subsidized aircraft exports through Export  Development Corporation (EDC) equity infusions;
EDC loan guarantees;  support from the Canada Account to aircraft makers;  government financing of
aircraft and engines development;  and benefits conferred under the Canada-Quebec Subsidiary
Agreement on Industrial Development and by the Government of Quebec.  Brazil and Canada
appointed two envoys, one from each country, to help resolve the dispute.27  The envoys' report was
presented to the two governments in April 1998.  As negotiations based on that report were not
fruitful, Brazil and Canada have requested the establishment of a WTO panel to review the
programmes in question (Table II.2).
                                                     
26WTO documents WT/DS70/1 and G/SCM/D11/1, 14 March 1997;  WT/DS71/1 and G/SCM/D12/1,
14 March 1997.
27Financial Times, 26 and 29 May 1998.Canada WT/TPR/S/53
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60. Canada's automotive trade regime has become another source of trade frictions.  After a two-
year study, the Canadian authorities announced in June 1998 that Canada would not eliminate
unilaterally the 6.7% MFN tariff on vehicles but would address any tariff reductions in the context of
future rounds of multilateral trade negotiations or in fora such as APEC or the FTAA.  Nevertheless,
the 6.7% MFN tariff would be reduced to 6.1% in 1999 under Canada's Uruguay Round
commitments.  Under the 1965 Canada-United States "Auto Pact" (later incorporated in theCanada-U.S. Free Trade Agreement and NAFTA), Ford, Chrysler, General Motors and other
automotive manufacturers may import vehicles duty-free from anywhere in the world provided they
comply with certain performance requirements (C hapter IV(3)).  Toyota and Honda, which have
plants in Ontario, have argued that they should be entitled to similar treatment because they will soon
meet the Pact's requirements, and have substantial production in Canada.
61. Canada has expressed strong opposition to the extra territorial nature of the U.S.
Helms-Burton Act, noting the negative impact it has on Canadian trade and investment ties with
Cuba.  Amendments to Canada's Foreign Extraterritorial Measures Act entered into force on
1 January 1997 to block the enforcement of Helms-Burton judgments in Canadian courts, and allow
Canadian companies to sue in Canadian courts to recover any amounts, including costs, awarded
against them.  Canada has also held NAFTA consultations with the United States and retains the
option of requesting a NAFTA panel.  Multilaterally, Canada was a third party in the European Union
challenge to the legislation in the WTO (Table II.2).
62. Frictions have also arisen between Canada and the United States regarding the five-year
agreement in force between the two countries since 1996 introducing an export fee on certain
Canadian softwood lumber exports (Chapter III(2)(ii)).  In July 1998, the United States requested
arbitration under the agreement concerning a reduction in stumpage fees announced by BritishColumbia in May 1998.  As of October 1998, the arbitration panel selection process was continuing in
parallel with informal discussions to resolve the matter prior to a panel decision.  In July 1998,
Canada requested consultations over the U.S. Customs decision to reclassify lumber with pre-drilled
holes as a product covered by the agreement.  The Canadian authorities indicated that if no mutually
acceptable solution was reached, the countries could proceed to an arbitral panel using the procedureset out in the agreement.  In addition, Canada is seeking a ruling by the Harmonized System
Committee of the World Customs Organization concer ning the appropriate product classification for
drilled studs.  A private company has also challenged the U.S. Customs ruling through the U.S. Court
of International Trade.
63. Over the last two years, Canada has settled several trade remedy disputes under NAFTA
rules.
28  These include two disputes with Mexico regarding anti-dumping determinations by the
Mexican authorities, which had been appealed by Canadian steel producers.  Panel decisions on these
cases were made in 1997;  one resulted in the termination of a Mexican finding, the other review was
terminated.  In 1998, three panels were reviewing Canadian anti-dumping determinations, regarding
imports of steel from Mexico and imports of concrete panels and baby food from the United States(see also Chapter III(3)(ii)).  In addition, panel decisions were issued with respect to a Canadian anti-
dumping determination on sugar from the United States and a U.S. anti-dumping determination on
colour picture tubes from Canada.  Panel decisions were due on the administrative reviews of two
anti-dumping findings on Canadian steel exports and one countervailing duty finding on magnesium
exports, all to the United States.
                                                     
28GATT(1995), Chapter VI, details the NAFTA dispute settlement mechanism.WT/TPR/S/53 Trade Policy Review
Page 34
64. The first NAFTA Chapter 11 investor-state dispute involving Canada was submitted to
arbitration in 1997.29  In this case, Ethyl Corporation, a U.S. firm, claimed that Canadian legislation
prohibiting the importation and interprovincial trade of the fuel additive MMT breached Canada’s
obligations under Chapter 11.30  Ethyl’s claim alleged that the effect of the legislation was
“tantamount to expropriation” and that compensa tion by Canada had not been provided.  Ethyl
Corporation also claimed that the Canadian legislation breached the national treatment andperformance requirement provisions in Chapter 11.  In a separate case, the province of Alberta -
joined by Quebec, Nova Scotia and Saskatchewan - initiated a challenge in 1997 against the Federal
Government regarding the MMT legislation under the Agreement on Internal Trade
(AIT, section (2)(iii) above).  In June 1998, the panel found that the legislation was inconsistent with
the AIT’s prohibitions both on obstacles to internal trade and on restrictions on the interprovincialmovement of goods, and recommended removal of the legislation’s restriction on interprovincial trade
in MMT.  On 20 July 1998, the Government announced its decision to lift the trade restrictions on
MMT in response to the AIT report.  Ethyl Corporation has withdrawn its NAFTA claim against
Canada.
65. Questions have been raised in WTO fora about the use of NAFTA dispute settlement
procedures instead of the WTO mechanism, as third parties might have a substantial interest in a
dispute between Canada and the United States or Mexico.
31  In the context of this review, the
Canadian authorities indicated that disputes regarding matters arising under both the NAFTA and the
WTO may be settled in either forum at the discretio n of the complaining party.  If a member intends
to bring a dispute in the WTO against another NAFTA member on grounds that are substantially
similar to those available under the NAFTA, and a third party wishes to have recourse to NAFTA
dispute settlement regarding the matter, consultations are required to seek to resolve the matter.According to the authorities, in practice a decisive consideration for complaining NAFTA members to
favour the WTO mechanism can be whether a matter is of substantial interest to other WTO
Members, provided the grounds of complaint are substantially similar under the NAFTA and the
WTO.
66. In mid-1998, Canada was pursuing discussions with the European Union to secure access to
the EU market for Canadian quality-labelled wines, and obtain recognition of its oenological
practices.  The Canadian authorities consider that there is currently very limited access to the EU wine
market.  They noted that assured access for Canadian wines to the EU was conditional on the
conclusion of a bilateral agreement;  discussions between Canada and the EU on improved wine
market access were ongoing.  In their view, protection for Canadian whisky in the EU also remainedan outstanding issue.
                                                     
29Chapter 11 of the NAFTA allows investors of NAFTA members to submit to arbitration a claim that
a NAFTA party has breached its obligations under the Chapter.
30MMT (methylcyclopentadienyl manganese tricarbonyl) is sold under the brand name HiTEC 3000.
31WTO (1996a), Minutes of the TPRB meeting.