RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/53
18 November 1998
(98-4574)
Trade Policy Review Body Original: English/
                French
TRADE POLICY REVIEW
CANADA
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Canada is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meetingof the Trade Policy Review Body on Canada.Canada WT/TPR/G/53
Page 3
CONTENTS
Page
I. INTRODUCT ION ................................................................................................................5
(1) E XECUTIVE SUMMARY ..........................................................................................................5
(i) Recent developments ...............................................................................................5(ii) Future plans .............................................................................................................5
(2) T
RADE AND ECONOMIC POLICY ENVIRONMENT ................................................................6
(3) T RADE POLICY DEVELOPMENTS 1996-1998........................................................................7
(4) F UTURE POLICY DIRECTIONS ...............................................................................................8Canada WT/TPR/G/53
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I. INTRODUCTION
(1) EXECUTIVE SUMMARY
(i) Recent developments
1. Canada's efforts to expand trade and to promote new investment have been supported by a
strong domestic economy.  Its gross domestic product grew 3.7% in 1997, fuelled by strong domestic
demand and a steady trade performance.  The first budget surplus at the federal level in three decades,low inflation, low interest rates, and rising employment levels have put Canada in a good position to
weather the current turbulence in world financial markets and to continue to be an active participant in
world trade and investment.
2. Despite the fact that Canada is a net exporter of commodities, declining world commodity
prices of recent months have had a limited impact on Canada’s economic performance as the share ofthe commodities sector in total exports is not as important as it once was.  Indeed, the share of
resource-based commodities in total exports has fallen from 60% in 1980 to about 35% today,
representing some 12% of Canada’s GDP.  This reflects the changing reality of Canada’s economy
which is shifting from a commodities-based to a more knowledge-based economy.
3. Canada’s efforts to further open markets and strengthen  international rules on trade have led
to several key developments, including:
- Signing multilateral agreements on basic telecommunications, financial services, and
information technology products and playing an active role in the ITA II and
Pharma III tariff negotiations under the umbrella of the World Trade Organization
(WTO);
- Eliminating tariffs on most products between Canada and the United States and
implementing another round of tariff reductions with Mexico on 1 January 1998;
- Eliminating tariffs on a broad range of products under the Canada-Chile Free Trade
Agreement;
- Moving ahead with trade liberalization and facilitation efforts within the Asia Pacific
Economic Co-operation (APEC) forum and taking on the role of the first chair of the
negotiations aimed at achieving a Free Trade Area of the Americas (FTAA); and
- Launching free-trade negotiations with countries of the European Free Trade
Association (EFTA) as well as continuing work on the Canada-European Union
Transatlantic Action Plan.
(ii) Future plans
4. Canada will continue to promote international trade and investment and to pursue greater
access to foreign markets through strengthening and expanding international trade rules.  Among the
key priorities:
- Canada will continue to work actively for everything from the implementation of the
Uruguay Round agreements by other WTO members, to participating in the accession
negotiations of non-members to the WTO, to preparing for negotiations onWT/TPR/G/53 Trade Policy Review
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agriculture and services and in other areas.  The WTO remains the cornerstone of
Canadian trade policy.
- Trade and investment relations with the United States and the Americas will continue
to be a major Canadian priority.  Under the North American Free Trade Agreement
(NAFTA), Canada will work towards reducing barriers in such areas as services,
government procurement, and trade remedies.  Our active involvement and leadershipof the FTAA negotiations will continue in the months ahead.
- Openness to the public in trade and investment negotiations will be key to Canada's
approach in coming years.  Canada will continue to undertake full domestic
consultations with interested public and private sector groups on various trade
negotiations and other initiatives and to promote greater transparency in the work ofthe WTO and other trade organizations.  Greater public understanding and broader
public support is key to effective trade policy.
(2) T
RADE AND ECONOMIC POLICY ENVIRONMENT
5. The Canadian economy enjoyed solid growth in 1997, led primarily by gains in private
consumption and investment.  While growth in the first quarter of 1998 remained very strong, itslowed in the second quarter due to a sharp slowdown in inventory accumulation.  Notwithstanding
the financial and economic situation in Asia, Russia, and elsewhere, Canadian exports and imports
have continued to increase, albeit at a slower rate.  Canada’s unemployment rate continued its steady
decline, standing at 8.1 per cent in October 1998, its lowest rate in eight years.
6. The value of Canadian exports of goods and services increased from $84 billion in the first
quarter of 1997 to $89 billion in the second quarter of 1998.  During the same period, imports rose
from $78 billion to $87 billion, largely in response to strong domestic demand and likely also due tothe depreciation of many Asian currencies  While exports to Asia have declined in 1998 with the
economic downturn  in the region, imports from Asia have continued to increase. For example,
exports to Thailand and Indonesia dropped by 41% and 44% respectively, (January-June 1998 vs
January-June 1997) while imports increased by 10% and 13%, respectively.   The openness of the
Canadian market to imports from Asia is helping to mitigate the decline in the region's economicactivity and will contribute to a restoration of growth in these markets which are so important to the
Canadian and to the world economy.
7. Sound economic fundamentals and attractive, transparent investment policies are leading to
increasing amounts of foreign direct investment.  FD I flows for the first half of 1998 exceeded those
of all of 1997.  Direct investment flows were largely to and from the US and were concentrated in thefinance and insurance industries.  Significantly, Canada has now become a major global investor, with
total direct investment abroad in the past two y ears, for the first time in Canadian economic history,
exceeding inward FDI.  In 1997, total investments abroad reached $194 billion; foreign direct
investments in Canada totalled $188 billion.
8. Aware of the challenges and opportunities of the forces of globalization, Canada has placed a
high priority in getting its economic house in order to ensure that Canadians can participate fully in,
and benefit from, the global economy.  The difficult steps taken to address the economic and fiscal
problems that faced the country earlier in the decade have established a solid foundation for continued
growth.  For the first time since 1969/70, the Govern ment of Canada recorded a surplus ($3.5 billion)
which has been applied directly to the debt.   The debt-to-GDP ratio fell in 1996/97 and even furtherCanada WT/TPR/G/53
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in 1997/98.  This accomplishment has been mirrored by the provinces which together have almost
eliminated their deficits; the tota l government sector deficit in Canada has thus now been entirely
erased.  Interest rates have been brought down substantially with the interest rates on long-term
government bonds now at their lowest level in 30 years.
9. Despite the current world-wide economic uncertainty, the fundamentals of the Canadian
economy are expected to remain strong - a low inflation environment, a declining debt-to-GDP ratio,and strong private sector investment.  While growth may be slower than in 1997, there are
encouraging signs of continued expansion in cons umer demand and business investment, supported
by higher employment, low medium  and long-term interest rates, and a steady trade performance.
(3) T
RADE POLICY DEVELOPMENTS 1996-1998
10. Over the past two years, Canada continued to pursue policies to improve access to the
United States and other foreign markets, and to promote the improvement and expanded coverage of
international rules governing trade and investment.  Since the last Trade Policy Review in 1996, the
following major developments have taken place:
- Canada has fully implemented its Uruguay Round commitments.
- Canada participated actively in further liberalization efforts of the WTO.  In 1997,
Canada signed the agreement eliminating duties on information technology products.
Canada is also a party to the agreement on basic telecommunications services and the
agreement on financial services; it has also played an active role in the ITA II and
Pharma III tariff negotiations.
- With respect to the NAFTA (and the Canada-US FTA upon which it is based), tariff
elimination on most products between Canada and the United States was completed
on schedule on 1 January 1998.  The fifth round of Canada-Mexico tariff reductionstook place on the same date.  The second round of "accelerated" tariff reductions
under the NAFTA was implemented in August 1998.  In the context of the up-coming
5th anniversary of NAFTA, an operational review of the NAFTA work program and
future priorities was completed in 1998.  For Canada, the NAFTA strengthened the
terms of  access to the US market by building on the provisions of the Canada-U.S.FTA.  It has also given Canada and Mexico much better reciprocal access into each
other's markets. Canada's bilateral trade with the United States has more than doubled
since the FTA came into force in 1989, reaching $429 billion in 1997, and trade with
Mexico has grown by 80% since the implementation of the NAFTA, reaching
$8.3 billion in 1997.
- Canada was chosen to chair the FTAA negotiations process for the first 18 months.
Initial meetings have been held by the nine negotiating groups and the three
additional bodies addressing horizontal issues: electronic commerce, smaller
economics, and the participation of civil society.
- The Canada-Chile Free Trade Agreement (CCFTA) and its two parallel agreements
on environmental and labour cooperation entered into force in July 1997.  Tariffs
were eliminated immediately on a broad range of products and the majority of the
remaining tariffs on industrial and resource-based goods will be phased out within
five years.WT/TPR/G/53 Trade Policy Review
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- In 1997, when Canada hosted the APEC Leaders' Meeting, agreement was reached to
move forward on early voluntary sectoral liberalization (EVSL) initiatives in fifteen
sectors.  Work continues in APEC to realize agreements in nine priority sectors which
could provide impetus to broader participation through the WTO.
- Work continues on the Canada-EU Transatlantic Action Plan.  Agreements on
customs cooperation and humane trapping standards were signed in 1997.  Canadahas suggested that Europe's negotiations with Canada, Mexico and the US would
benefit from convergence.
- Canada has begun negotiations with EFTA on a free trade agreement.
- Canada implemented its Tariff Simplification Initiative on 1 January 1998.  This has
made an important contribution to increasing the transparency and administrativeefficiency of the Canadian import regime.  It unilaterally reduced or eliminated a
broad range of tariffs, rounded most rates, eliminated rates of less than 2%,
harmonized certain rates, and amalgamated tariff items.  Canada also completed its
review of the Special Import Measures Act.  In March 1998, Canada introduced a bill,
which is before Parliament, that proposes adjustments to the system, largely of aprocedural nature, and improvements to further enhance transparency.
(4) F
UTURE POLICY DIRECTIONS
11. Canada's economy is trade-dependent and increasingly globally integrated.  Forty percent of
Canada's GDP depends on trade, one out of three jobs  is tied directly to trade, and every $1 billion in
foreign direct investment has been estimated to create as many as 45,000 jobs in Canada.  Expanding
international trade and investment is a vital element of the government's strategy to promote jobs,
growth and prosperity.  Trade agreements are instruments utilized by Canada for advancing its tradeand economic interests, namely, the pursuit of economic growth and jobs that result from exports and
outward investment opportunities, and increased effi ciency due to inward investment and technology
flows and the stimulus of increased import competition.   As a large trader with a relatively small
economy, Canada benefits from a trade regime based on rules rather than on power.
12. Looking ahead, Canada will continue to pursue its complementary strategy of trade promotion
and trade policy.  Key thrusts will include opening markets further and promoting Canadian business
within new and expanded markets. Canada will conti nue to promote a rules-based open international
trading system, based on the application of transparent, predictable, and enforceable multilateral trade
rules.  At the same time, Canada will continue to pursue further reduction of traditional barriers to
trade – industrial tariffs, quotas, and import restrictions – and the elimination of unwarranted non-tariff barriers.  We will remain active in the ongoing work in the TRIPs Council and in the working
groups deliberating on trade and competition, on trade and investment, and on transparency in
government procurement.  Canada will also work to develop further a transparent and  strengthened
dispute settlement regime.
13. Canada will continue to emphasize the importance of full implementation of the Uruguay
Round agreements by other WTO Members.  It supports the use of technical assistance to enable
developing and least-developed countries to build the capacity to meet their obligations and benefit
from participating in the rules-based system.  Canada  considers it particularly important to implement
market access commitments undertaken at the High  Level Meeting on Least Developed Countries
held in October 1997.  Canada will also be working to make the WTO more universal by activelyCanada WT/TPR/G/53
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working to facilitate the accession of major traders such as the People's Republic of China, the
Russian Federation, and other economies in transition.
14. Recent discussions in the WTO about a new set of comprehensive trade negotiations present
more opportunities to expand and strengthen the rules-based system.  Canada believes that it is
important that we explore ways to achieve results in a timely fashion.  Canada intends to participate
actively in the preparatory process of fashioning the scope, format, and content of mandated and newnegotiations.  Consideration should be given to how negotiations on a cross-section of issues could be
concluded at different times.  This approach might offer a balance of incentives to encourage
participants in the WTO negotiations to move forward quickly and to achieve the resulting benefits.
15. Taken together, these initiatives demonstrate that the trade agenda is increasingly about
strengthening markets, in addition to opening markets, and reflects the horizontal, domestic agenda ofregulatory reform, democratic development, and good governance.  We are working to achieve these
objectives by creating a predictable and transparent supervisory structure that ultimately avoids
corruption and creates a stable environment  for traders, investors, and consumers.
16. The recent turmoil in the world’s financial markets have led to suggestions – similar to those
heard in the 1930s – that new barriers to trade and investment should be erected, and thatliberalization has gone too far.  In the 1930s, these voices won the day and led to disastrous
consequences.  The reality is that we need the opposite approach.  It is only through open trade and
free-flowing investment and technology that our econom ies will  maintain or regain solid, sustainable
growth.  The threat to renewed prosperity is not the global financial upheaval; rather it is the risk that
we may lose sight of the foundations upon which economic prosperity of the past fifty years rests.
Canada thus will work to ensure greater institutional coordination such as between the WTO, the
International Monetary Fund, and the World Bank.
17. Canada will continue to work towards greater transparency in shaping and conducting trade
negotiations, and in the day-to-day conduct of the WTO's work.  As outlined in a recent joint Canada-
US proposal, we have made proposa ls that would expedite the circulation of dispute panel reports,
expand the number of unrestricted documents, and expedite their circulation.
18. Canada will continue to seek bilateral and regional trade agreements to complement
multilateral efforts.  Canada recognizes that such agreements often bring results in a shorter time-
frame than is possible in a global forum, that they advance the multilateral agenda, and that they
maintain the momentum for broad-based trade liberaliza tion.  A basic tenet is that these regional trade
initiatives remain consistent with the primacy of the WTO framework.  In this respect, Canada will
continue to be active in the work of the WTO Committee on Regional Trade Agreements to ensurethat regional agreements are thoroughly examined with respect to their consistency, both in law and in
spirit, with the WTO.  Canada is particularly concerned that the Committee has been unable to
conclude the examination of individual regional trade agreements notified to the WTO.  For example,
the examination of NAFTA, which started in March 1994, has still not been completed.
19. The framework provided by the NAFTA, and its ongoing implementation, will continue to be
an important element of Canadian trade policy.  Canada will continue to work toward market access
objectives in additional areas such as services, government procurement, and the application of trade
remedies.  Additional priorities to be addressed are being developed by the three NAFTA members
with a view to expanding trade and investment further.WT/TPR/G/53 Trade Policy Review
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20. In respect of the Free Trade Area of the Americas (FTAA), the current challenge is to achieve
concrete results in the early phase of the process, including progress with respect to business
facilitation and engaging civil society.  Challenges remain in APEC’s being able to implement EVSL,
particularly in the current economic context.
21. Canada will continue to pursue improved and more effective relations with the EU.  At the
same time, Canada will work towards combining the present three-pronged strategy which involves
separate negotiations on trade liberalization and facilitation between the EU and Canada, Mexico, and
the United States, into a more coherent framework.
22. Canada has recently launched free trade negotiations with the countries of the European Free
Trade Association (EFTA): Norway, Switzerland, Iceland and Liechtenstein.  These negotiations are
expected to progress quickly.
23. In terms of its bilateral relations, Canada will give priority to managing its relationship with
the United States as, by far, the US will continue to be Canada's largest export market.
24. As Canada pursues various trade negotiations and initiatives, it faces both the challenge and
opportunity to enhance public understanding of the evolving international trade agenda, the
contribution of trade and investment to jobs a nd growth, and Canada's existing and prospective
international commitments.  The active interest of the public reflects the fact that we increasingly deal
with issues once considered "domestic."  Concer n about the domestic impact of competition for
markets and foreign investment, and the fallout from the crisis in global financial markets has
expressed itself in public pressure to reflect social and cultural concerns in the development of trade
policies and negotiation of agreements.
25. Concerns about sovereignty, the integrity of social policies, protecting the environment,
maintaining national identity, and better sharing of the benefits of trade resonate as much in Canada aselsewhere.  Canada will continue to address these concerns and uphold the integrity of its social
policies by ensuring that social impacts are considered fully in the formulation of trade policy
initiatives.  Canada remains committed to close consultation with its private and public sectors and
with our trading partners in the WTO to ensure  that trade and investment liberalization does not
undermine basic values, standards, culture, or a government's right to regulate for legitimate publicinterests within the broad context of the primacy of the rule of law in international trade.
26. Considerable work lies ahead; Canada will continue to be fully engaged in analysis,
discussions, consultations, and negotiations to realize the further benefits and resulting prosperity that
will flow from an effective, strengthened and expanded world trading system.
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