RESTRICTED
WORLD TRADE WT/TPR/S/22
7October 1996
ORGANIZATION(96-4047)
TRADE POLICY REVIEW
CANADA
Report bytheSecretariat
Thisreport, prepared forthefourth Trade Policy Review ofCanada, hasbeendrawn
upbytheWTO Secretariat onitsownresponsibility. TheSecretariat has,asrequired
bytheAgreement Establishing theTrade Policy Review Mechanism (Annex 3ofthe
MarrakeshAgreementEstablishingtheWorldTradeOrganization),soughtclarification
from theGovernment ofCanada onitstrade policies andpractices.
Document WT/TPR/G/22 contains thepolicy statement submitted bytheGovernment
ofCanada.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onCanada.Canada WT/TPR/S/22
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS xi
(1) Recent Economic Trends xi
(2) Trade Policy Developments xi
(3) Other Policies Affecting Adjustment andGrowth xii
(4) Sectoral developments xii
(i) Primary industries xii
(ii) Manufacturing xii
(iii) Services xiii
(5) Trade Policies andForeign Trading Partners xiii
I. THE ECONOMIC ENVIRONMENT 1
(1) Macroeconomic Trends 1
(i) Production andemployment 1
(ii) Fiscal andmonetary developments 3
(2) Trade andInvestment Patterns 6
(i) Trade ingoods 6
(ii) Developments inservices trade 9
(iii) Foreign direct investment 9
(3) Outlook 9
II. RECENT DEVELOPMENTS INCANADIAN TRADE POLICY 10
(1) Internal Reform andInternational Integration 10
(2) Trade Policy Objectives andTrends 12
(i) Participation intheWTO 12
(a) Recent developments 12
(b) General policy orientation 12
(c) New Themes 14WT/TPR/S/22
Page ivTrade Policy Review
Page
(ii) Regional trade initiatives 15
(a) NAFTA 15
(b) Western Hemisphere Free Trade Area oftheAmericas (FTAA) 16
(c) Asia-Pacific Economic Cooperation (APEC) 16
(d) Bilateral free-trade agreements (FTAs) 16
(e) Long-term perspectives 16
(iii) Autonomous policy initiatives 17
(3) Objectives andTrends inInvestment-related Areas 17
Annex II.1 Dispute Settlement under GATT/WTO Provisions 18
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT 20
(1) Main Features 20
(2) Tariffs andTrade-related Taxes andCharges 20
(i) Border taxation 20
(a) M.f.n. tariff reform 21
(b) Tariff adjustments under NAFTA 25
(c) TheGeneral Preferential Tariff (GPT) 25
(d) Export charges 26
(ii) Internal taxation 27
(3) Other Policies Directly Affecting Trade 28
(i) Trade prohibitions, licensing requirements andquantitative restrictions 28
(ii) Trade defence mechanisms 29
(a) Anti-dumping 29
(b) Countervailing measures 33
(c) Safeguards andother emergency trade measures 33
(iii) Local content, performance andpurchase requirements 34
(iv) Export subsidies andexport promotion activities 35
(4) Policies Affecting Adjustment andGrowth 37
(i) Regulatory reform 37
(a) Domestic reform agenda 37
(b) International developments 39
(c) Environmental regulations 40
(ii) Government procurement 41
(a) Recent international developments 41
(b) Internal policies 42
(iii) Investment policies 44
(a) Recent developments 44
(b) Review provisions 45
(c) Provisions intheAgreement onInternal Trade 47Canada WT/TPR/S/22
Page v
Page
(iv) Government financial assistance 48
(a) Sectoral andregional assistance atfederal level 49
(b) Support forresearch anddevelopment 50
(c) Provincial initiatives 51
(5) Competition Policy 52
(i) Recent developments 52
(ii) International co-operation 53
(iii) Exclusivity rights (State trading) 54
(iv) Price regulation andsurveillance 55
(6) Intellectual Property Protection 56
(i) Recent developments 56
(ii) Compulsory licensing 57
(iii) Provisions governing parallel imports 58
Annex III.1 Canadian Anti-Dumping Law-Main Features andRecent Modifications 59
IV. SECTORAL POLICY PATTERNS AND TRENDS 65
(1) Overview 65
(2) Agriculture, Food, Fisheries andForestry 66
(i) Main features 66
(ii) Recent developments under theWTO andNAFTA 67
(iii) Cereals andrelated products 71
(iv) Beef, vealandpork 73
(v) Poultry andeggs 74
(vi) Dairy 75
(vii) Beverages 77
(viii) Fishing andfishproducts 77
(ix) Wood andpaper industries 79
(3) Energy 80
(i) Overview 80
(ii) Oil 81
(iii) Natural gas 82
(iv) Electricity 82
(4) Manufacturing 85
(i) Overview 85
(ii) Adjustments intraditional industries 88
(a) Motor vehicles 88
(b) Textiles andclothing 90WT/TPR/S/22
Page viTrade Policy Review
Page
(iii) Performance intechnically-advanced industries 95
(a) Background 95
(b) Information andcommunication technologies 97
(c) Aeronautics andspace industry 99
(5) Services 100
(i) Recent developments 100
(ii) Financial services 101
(a) Background 101
(b) Banking 104
(c) Other lending andborrowing activities 105
(d) Insurance 106
(iii) Telecommunications 108
(a) Background 108
(b) Regulatory framework 109
(c) Market developments 112
(d) External aspects 113
(iv) Transport services 114
(a) Main features 114
(b) Airtransport 115
(c) Maritime transport 117
(v) Cultural services 120
(a) Background 120
(b) Support instruments 122
(c) New challenges 125
REFERENCES 127
APPENDIX TABLES 131Canada WT/TPR/S/22
Page vii
CHARTS
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Current account andgeneral government balance aspercentage ofGDP, 1985-95 3
I.2 External transactions andtheCanadian dollar 'seffective exchange rate, 1989-95 5
I.3 Merchandise trade byregion, 1989 and1995 7
I.4 Merchandise trade bysector, 1989 and1995 8
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
III.1 Tariff averages (m.f.n. rates), 1994 and1996 21
III.2 Tariff revenue, 1984-96 24
III.3 Federal government budget, 1996-97 27
III.4 Time-profile ofanti-dumping actions, July1988 toJune 1995 31
III.5 Government assistance toindustry, 1981-93 48
IV. SECTORAL POLICY PATTERNS AND TRENDS
IV.1 Agricultural output atcurrent prices, 1995 66
IV.2 Tariffs onagricultural products, 1996 70
IV.3 Electricity trade, 1994 83
IV.4 Price indices, 1983-95 85
IV.5 Changes inCanadian andUnited States unitlabour-cost, 1990-94 86
IV.6 Tariffs onmanufactured products, 1996 87
IV.7 Employment andproduction inthetextiles andclothing industry, 1984-95 91
IV.8 Textiles andclothing imports bysource, 1991-95 92
IV.9 R&D expenditure asapercentage ofGDP, 1993 96
IV.10 Thecostoffinancial transformation inselected OECD countries, 1990-94 103
IV.11 Competitive situation inindividual telecommunications markets, 1995 111
IV.12 Main telecommunications operators, 1994 112
IV.13 Structure ofthetelecommunications services industry, 1995 113WT/TPR/S/22
Page viiiTrade Policy Review
TABLES
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Performance oftheCanadian economy, 1989-95 2
I.2 Summary statement oftheFederal Budget, 1993-98 4
II. RECENT DEVELOPMENTS INCANADIAN TRADE POLICY
II.2 Principal notifications made inthecontext ofimplementing WTO Agreements, August 1996 13
Annex Table II.1-Cases involving Canada under GATT/WTO dispute settlement provisions
(Articles XXII andXXIII), August 1996 18
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT 20
III.1 Selected tariffs exceeding 50percent, 1996 22
III.2 Tariff treatment byorigin, 1996 25
III.3 Import subject tolicensing, June 1996 29
III.4 Initiation ofanti-dumping investigations, January 1994 toDecember 1995 32
III.5 Countervailing dutymeasures inforce, 31December 1995 33
III.6 Direct export financing, insurance andguarantees provided bytheExport Development
Corporation, 1991-94 36
III.7 Procurement thresholds under theWTO Agreement andNAFTA, 1January 1996 42
III.8 Expenditure onselected federal programmes forindustry, 1993-94 50
III.9 Selected provincial assistance programmes forindustry, 1993-94 52
III.10 Exclusivity arrangements affecting production ortrade, 1996 55
III.11 Acquisition andenforcement ofintellectual property rights, 1996 56
IV. SECTORAL POLICY PATTERNS AND TRENDS
IV.1 Tariff quotas foragricultural andfood products subject totariffication 68
IV.2 Actual exports andexport subsidies commitments 71
IV.3 Main economic features oftheCanadian energy sector, 1994 80
IV.4 Institutional structure ofelectricity production 84
IV.5 Selected economic indicator fortheNorth American carindustry, 1995 88
IV.6 Suppliers oftextile andclothing products, July1996 95
IV.7 Tariffs onselected information technology products before andafter theUruguay Round
implementation process 98
IV.8 Investment restrictions andcontrols inselected services sectors, 1996 102
IV.9 Main support measures forindividual cultural industries atfederal level 121
IV.10 Government spending onculture andnational heritage, FY1993-94 123Canada WT/TPR/S/22
Page ix
APPENDIX TABLES
Page
AI.1 Imports byproduct group, 1989-95 133
AI.2 Exports byproduct group, 1989-95 134
AI.3 Imports byorigin, 1989-95 135
AI.4 Exports bydestination, 1989-95 135
AIV.1 Tariffs ontextiles imports bysource, 1996 136
AIV.2 Tariffs onclothing bysource, 1996 137Canada WT/TPR/S/22
Page xi
SUMMARY OBSERVATIONS
(1) Recent Economic Trends
1. Exports andinvestment (principally in
export oriented industries) havebeenthemain
elements inthestrengthening ofCanada 's
economy since early 1994. Both"traditional"
industries such asminerals, lumber and
automobiles, and"advanced" sectors have
benefited from strong demand intheUnited
States, currency depreciation vis-à-vis theU.S.
dollar andliberalization under NAFTA andthe
WTO. During theperiod, theUnited States '
share inCanada 'strade hascontinued torise,
currently accounting forfour fifths of
merchandise exports andtwothirds ofimports.
2. External liberalization isbeing
complemented byaprocess ofinternal
deregulation,commercializationandgovernment
retrenchment. This hashelped toease
distortions intheincentive system, consolidate
public finances andcreate astronger basis for
longer-term economic expansion; inthe
meantime,however,unemploymentremainshigh
anddomestic demand lagsGDPgrowth. Under
thenewAgreement onInternal Trade (AIT),
efforts arebeing made toharmonize conditions
fortrade andinvestment andfacilitate factor
flows among theprovinces. Thecombined
effects ofdomestic andexternal reforms touch
virtually allsectors oftheeconomy, withthe
exception ofafewsensitive areas such as
cultural industries and supply-managed
agriculture.
(2) Trade Policy Developments
3. Canada became afounding Member of
theWTO on1January 1995. TheWTO
Implementation ActofNovember 1994involved
amendments to29federal statutes covering
virtually alltrade-related areas. Inaddition to
changes intheSpecial Import Measures Act
(SIMA) necessary toimplement theWTO
Agreements, ageneral review ofanti-dumping
provisions iscurrently under way. Canada has
fulfilledmostofitsWTOnotificationobligations,
buthasyettocomplete these insome areas of
agriculture andsubsidies.4. Tariff liberalization hasproceeded in
linewithbothNAFTA andWTO obligations.
Tariffs onU.S.-made manufactures currently
averageabout1percentasagainst6.6percent
onm.f.n. imports. Over58percentofalltariff
linescarry zeroratesforU.S.supplies, withfull
bilateral tariff elimination, except forcertain
farm items, scheduled for1998. Toprevent
further erosion ofGeneral Preferential Tariff
benefits, areduction inpreferential rates on
some 3,000 items andanextension inproduct
coverage arebeing phased in.
5. Canada hasalsoembarked onatariff
review process intended tosimplify thepresent
multi-layered tariff régime. Toenhance
industrial competitiveness, tariffs onsome
1,500 items, mainly inputs formanufacturing,
werereduced inJune1995. Performance-based
dutydrawback andremission schemes arebeing
phased outunder WTOandNAFTA provisions.
6. Anti-dumping remains apotentially
powerful trade defence instrument, withover
90measures currently inforce(including price
undertakings). However, thenumber ofnew
initiations hasdeclined inthewakeofbooming
exports andcurrency depreciation, continuing
adownward trend since themid-1980s.
Canada 'sonly safeguard measure under
ArticleXIX,concerningbonelessmanufacturing
beef,expiredasscheduledon
31December 1994. Five out ofsix
countervailing actions applied atend-1995
concernedprocessedfoodproductsfromtheEU.
7. There isnoevidence ofCanada 's
imports being subject toany"voluntary"
restraints affecting prices, quantities orother
supply conditions. Theauthorities reportedly
refused tomonitor cereal exports totheUnited
States after theexpiry ofabilateral
MemorandumofUnderstandingin1995.Under
arecent bilateral arrangement onsoftwood
lumber, Canada undertook toimpose anexport
charge onshipments above certain thesholds to
theUnited States; thearrangement isintended
tosafeguard exporters fromtherisksandlegal
costs, estimated atsome US$100 million overWT/TPR/S/22
Page xiiTrade Policy Review
thepastthreeyears, oftrade remedy complaints
intheUnited States.
(3) OtherPoliciesAffectingAdjustmentand
Growth
8. Given strong fiscal constraints, recent
internal policies have relied strongly on
non-budgetary measures torevitalize the
economy andimprove Canada 'sattraction for
investment andproduction. Avariety ofpolicy
initiatives areaimed atremoving regulatory
barriers tobusiness expansion, reducing
subsidies, andopening factor andproduct
markets tointerprovincial competition. While
theprovinces arefullyassociated withthefiscal
consolidation process, itisdifficult toidentify
itsimpact onindividual subsidy programmes.
Inthisarea, theAITcontinues toallow
considerable leeway.
9. Reflecting concerns about Canada 's
performance inhigh-technology industries,
strong attention continues tobepaidtoresearch
anddevelopment. Support programmes have
been restructured inrecent years andhave
generallyescapedtheeffectsoffiscaltightening.
ThelargestR&Dscheme,theDefenseIndustries
Productivity Program, wasreplaced in1996by
"TechnologyPartnershipCanada",a
venture-capitalfundinvestingin
advanced-technology projects.
10. Conditions forforeign investors have
improved. Liberalization under theNAFTA,
including higher investment review thresholds
andtheremoval ofownership restrictions for
federally-incorporatedfinancialinstitutions,was
multilateralized under theGeneral Agreement
onTrade inServices. While ownership limits
have been eased onholding companies in
broadcasting,Canadacontinuestomonitorand,
insome cases, restrict foreign investment in
sectors considered sensitive forstrategic,
economic orcultural reasons.
11. Asasignatory tothePlurilateral
Agreement onGovernment Procurement (GPA),
Canada iscommitted totheprinciple ofopening
ofprocurement markets among signatories. Its
undertaking toinclude sub-federal procurement
under theGPA is,however, linked toeconomically equivalent moves bythe
United States. While theAgreement onInternal
Trade seeks toremove provincial procurement
preferences, significant reservations remain, in
particular forCrown Corporations. Where no
internationalcommitmentsapply,AITsignatories
arefreetoemploy buy-Canadian policies.
(4) Sectoral Developments
(i) Primary industries
12. Overall,Canadianagriculturebenefited
from favourable price andexchange rate
developments in1994 and1995. Federal
outlays foragriculture havebeen reduced by
some 20percentsince 1994, mainly through
theelimination oftransport subsidies under the
Western Grain Transportation Act;andstrong
export demand hashelped traditional export
products, inparticular wheat, toadjust tocuts
inpublic support. Themore market-based
environment forgrains andmajor livestock
industries contrasts, however, withtheretention
ofsupply management régimes fordairy
products, poultry andeggs. These products
continue tobesheltered byhighimport barriers,
nowintheformofrestrictive tariff quotas with
excess supplies carrying prohibitive rates,
ranging uptoover300percentforbutter. The
allocation ofquota entitlements toindividual
importers isgenerally based onpast
performance; inareas such asbutter,
condensed andconcentrated milk, historical
monopolies remain.
13. Canada 'soilandgasindustries have
performed wellinrecent years. Exports of
electric power have compensated forthe
sluggishness ofdomestic demand andprovided
afavourable background forprovincial
deregulation policies. However, disagreement
overtheapproach toliberalizing internal trade
hasdelayed theadoption oftheenergy chapter
oftheAIT.
(ii) Manufacturing
14. Bilateral tariff reductions under the
NAFTA haveintensified North American market
integration. U.S.-based companies currently
account for90percentofallcarsand60perCanada WT/TPR/S/22
Page xiii
centofallcomputers produced inCanada.
Large foreign-owned plants arecomplemented
byanetwork ofsmall andmedium-sized
Canadian firms, including producers of
technically advanced niche products insuch
areas asinformation technologies andaviation.
15. Intandem withtheimplementation of
theNAFTA, Canada hasreduced protection on
importsofselectedproductsfromm.f.n.sources.
Thus, m.f.n. tariffs oncarpartswereeliminated
inJanuary 1996, tobalance thetermination of
adutyremission programme inthesector, and
autonomous tariffreductions onfrequently used
textile inputs arebeing phased in.
16. Canada hasnotified totheWTOitsfirst
stage ofintegration under theAgreement on
TextilesandClothing.Restraintsaremaintained
with31WTO Members inEurope, Asia, the
Americas andAfrica. Inthecontext oftighter
origin requirements under theNAFTA, Canada
may export additional amounts ofnon-
originating clothing totheUnited States under
azero-tariff quota.
(iii) Services
17. Concerns about economic andtechnical
inefficiencies,andtheirbudgetaryramifications,
haveencouragedderegulation,privatizationand
management reform inmajor services sectors.
Competitive pressures from deregulated U.S.
industries haveprovided additional stimuli. In
recent years, competition hasbeenintroduced
inlarge segments ofthetelecommunications
industry, anddomestic airtransport hasbeen
liberalized. Inageneral climate of
deregulation, interprovincial market integration
inthetelecommunications andfinancial sectors
hasincreased withtherelative expansion of
federal control. Restrictions onsectoral
diversification financial services have been
removed, andinfrastructural monopolies inair
navigation andtheport system arebeing
commercialized.
18. Canadahasgenerallypursuedaprocess
ofgradual reform intheservice sector. This
mayhavecostsome time,buthassmoothed the
transition process. Asreforms have been
accompaniedbynewinternationalcommitments,firstunder theNAFTA, thenunder theGATS,
foreign suppliers have benefited. However,
cultural industries remain largely untouched by
reforms, while foreign ownership inareas such
astelecommunications carriers andairlines is
stillsubject toreview andcontrol provisions.
(5) Trade Policies andForeign Trading
Partners
19. Asbilateral trade flows havecontinued
togrow, adominant policy theme hasbeento
ensure smooth trade relations with the
United States. Afterdecades ofNorth American
market integration, starting withtheAutoPact
in1965, mostsectors arenowexposed to,and
perform wellin,fullcompetition withtheirU.S.
counterparts. Concerns persist, however, about
thepotential vulnerability oftheCanadian
economy deriving fromsuchhighreliance on
onelarge trading partner, onahandful of
"traditional" industries andonrelatively few
large-scale plants. Canadian policy thusseeks
tocombine external with stronger internal
market integration andencourage sectoral
diversification inproduction andtrade.
20. Inthisconnection, newtrade linksare
being forged, forexample through APEC and
theFreeTrade AreaoftheAmericas, andafree
trade agreement withChile seekstocomplement
andextend theNAFTA. These initiatives have
not,however, compromised Canada 'sactions
atthemultilateral level. Rather, Canada has
sought todevelop synergies between regional
andmultilateral integration, including by
promoting WTO-compatible rules atregional
leveland,atthesame time, binding itsNAFTA
services commitments externally under the
GATS. Thus, Canada 'soverall trade policies
remain firmly anchored intheWTO; however,
tradepatterns in"sensitive" industries highlight
thecontinuing importance ofbalancing internal
pressures inafederal system, regional
integration, andmultilateral liberalization.