Canada WT/TPR/S/78
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I. RECENT ECONOMIC DEVELOPMENTS
1. The Canadian economy will achieve its ninth year of consecutive growth in 2000, supported
by a sound macroeconomic framework of low inflation and stable fiscal and external balances.  The
process of fiscal, regulatory, and trade reform pursued throughout the 1990s has increased the
economy's capacity to adjust to external fluctuat ions, and has now translated into job creation, a
falling unemployment rate, and increases in real after-tax incomes.  More than two million jobs havebeen created since 1993, owing in part to the growth  in exports to the United States under the North
American Free Trade Agreement (NAFTA), highlighting the benefits of trade for specialization,
resource allocation and, ultimately, incomes.
(1) M
ACROECONOMIC DEVELOPMENTS
(i) Output, employment, and trade
2. Canada's economy has rebounded strongly to grow by over 4% in 1999-2000 after a
slowdown in 1998, which was caused mainly by the ec onomic turmoil in Asia and the related fall in
world commodity prices.  Since the fourth quarter of 1998, strong real advances in GDP reflect
buoyant exports to the United States and steady gr owth in domestic spending, and to a lesser extent
rising commodity prices, notably for base metals, crude oil, livestock, and pulp.  The substantialgrowth in the economy has brought  Canada's histor ically high unemployment rate to below 7%, its
lowest level since 1981.  One exception to the broad-based expansion may be in farming, where
incomes in 2000 remained approximately 25% below the high reached in 1996, partly because of the
decline in world prices for many agricultural commodities.
1  Canada's recent economic indicators are
presented in Table I.1.
3. An element of Canada's economic expansion has been strong export performance to the
United States (Chart I.1).  This in turn reflects a number of factors, including rapid economic growthin the United States, a flexible (and generally declining) Canadian dollar and the North American
trade agreements.  Exports of goods and services have increased from 30% of GDP in 1993 to 45% of
GDP currently.  Reflecting the extent of integration of the two economies, 86% of Canada's exports
are destined to the United States.
2  As a result, more than a third of Canada's GDP is directly
attributable to exports to the United States.
4. Growing investment in machinery, equipment,  and technology continued to underpin the
strength of domestic demand, suggesting that Canadian companies are exploiting new technologies.
This also contributed to the recent strength of imports.  While a downward trend in personal saving
has persisted since the early 1990s, increased saving by other sectors (notably the Government) has
provided  a source of funds for investment in the Canadian economy.  Annual domestic saving was7.5% of GDP in 1999, compared with 5% in 1998.
5. Wage cost pressures in the Canadian economy were kept to a minimum in 1999, as unit
labour costs for Canadian business increased only 0.5%, the lowest growth rate in the past four years.
Underlying inflation (consumer price index, excl uding food and energy) has remained under control
despite the exceptional regional economic growth and the doubling of the crude oil price sinceMarch 1999.  The total CPI rose 2.9% between June 1999 and June 2000, mainly due to rises in the
energy index.
                                                     
1 See Chapter IV(3)(i) for a discussion of the possible policy causes of this decline.
2 Data from Statistics Canada do not take into account the transhipment of products beyond the United
States (DFAIT, 2000a, Box 2).  According to the authorities, slightly over 80% of Canada's exports wereactually destined to the United States.WT/TPR/S/78 Trade Policy Review
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Table I.1
Performance of the Canadian economy, 1993-2000
(Can$ billion and per cent)
1993 1994 1995 1996 1997 1998 19992000
(Q1)a2000
(Q2)a
(Annual percentage change)
Real GDP 2.3 4.7 2.8 1.5 4.4 3.3 4.5 5.1 4.7
Consumer expenditure 1.8 3.1 2.1 2.5 4.4 2.9 3.5 3.4 3.6
Government expenditure -0.1 -0.4 -0.8 -1.5 -1.4 1.6 2.8 5.1 2.8
Residential investment -3.5 4.2 -15.1 9.7 12.6 -2.0 6.6 0.6 -11.0
Business fixed investment -2.4 9.2 5.7 6.4 20.7 6.1 10.5 15.4 19.5
Final domestic demand 0.6 2.8 0.8 2.2 5.2 2.8 4.4 5.2 4.8
Exports of goods and services 10.9 13.1 9.0 5.9 8.8 8.9 10.0 17.5 8.5
Imports of goods and services 7.8 8.3 6.2 5.8 15.1 6.1 9.4 14.7 10.2
GDP price deflator 1.5 1.1 2.3 1.6 1.0 -0.6 1.6 5.2 2.5
Consumer price index – all
items1.9 0.2 2.2 1.6 1.6 1.0 1.7 2.7 3.0b
Core CPI 1.8 1.6 2.3 1.5 1.5 1.2 1.5 1.5 1.5b
Unit labour costs -0.5 -2.1 0.6 0.8 1.3 1.4 0.5 3.4 5.5
Monetary expansion (M2+) 3.7 2.0 4.1 4.2 0.8 -0.6 3.6 7.3 5.4c
(Per cent)
Interest rates (short-term)d4.8 5.5 7.1 4.2 3.2 4.7 4.7 5.1 5.6e
Capacity utilization –
manufacturing79.7 83.1 83.2 82.4 83.7 83.8 85.7 87.8 88.4
Unemployment rate 11.4 10.3 9.4 9.6 9.1 8.3 7.6 6.8 6.95e
(Per cent of GDP)
Current account -3.9 -2.3 -0.8 0.6 -1.6 -1.8 -0.4 1.9 1.4
Federal budget balance -5.6 -4.6 -3.9 -2.0 0.5 0.5 0.6 1.8 0.4
Primary balance -0.1 0.7 1.8 3.4 5.5 5.4 5.2 6.2 4.7
Total government balance -8.9 -6.8 -5.4 -2.8 0.2 0.2 2.2 3.2 3.0
Primary balance 0.5 2.3 4.3 6.3 8.7 8.7 10.1 10.6 10.4
Net federal debt 66.5 67.2 68.2 68.6 65.4 63.0 58.8 54.8 ..
Total government net debtf82.7 84.7 86.5 87.5 83.9 81.9 76.6 70.7 ..
(Can$ billion)
GDP at current prices, income
based725.0 767.5 807.1 833.1 877.9 901.8 957.9 1,011.1 1,029.4
Exports (goods and services) 219.7 262.1 302.5 321.2 346.5 373.2 414.3 456.4 468.5
Imports (goods and services) 219.7 253.0 276.6 287.6 331.5 360.4 385.9 411.2 425.8
Memo items
Commodity price index
(1982-90 = 100 (US$))
Energy 76.5 70.7 70.6 85.1 83.4 64.6 78.9 106.8 109.2e
Non energy 104.8 112.7 125.2 123.7 118.4 103.6 105.2 113.0 111.6e
Terms of trade(1995 = 100)g98.1 97.2 100.0 102.1 101.0 97.6 100.5 104.4 ..
Exchange rate(Can$ per US$)1.29 1.37 1.37 1.36 1.39 1.49 1.48 1.45 1.48
Real effective exchange rate
(1995 = 100)91.9 98.8 100.0 98.4 99.6 107.9 108.7 105.6 107.7
a Annual rates. e July – August average.
b July 2000. f Public accounts basis, starting with fiscal year April 1993-March 1994.
c Estimate. g Constant – weighted Laspeyres index.d Three-month treasury bills. .. Not available.
Source : WTO Secretariat, based on data from Statistics Canada, Department of Finance, and Bank of Canada.Canada WT/TPR/S/78
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Chart I.1                                            
GDP growth rate and merchandise trade with the United States and the rest of the world, 1990-99
Source : UNSD, Comtrade database; and Statistics Canada.1990 1991 1992 1993 1994 1995 1996 1997 1998 1999-2-1012345
Imports from the rest of the worldExports to the U.S.US$ billion
Imports from the U.S.
Exports to the rest of the worldGDP growth rate in real terms
(right axis )%
050100150200250
(ii) Fiscal policy
6. Federal and most provincial governments have now completed the deficit-reduction process
initiated in 1993-94, and are expecting overall surpluses in 2000-01.  These surpluses are being used
to increase spending in priority sectors such as health and education.  The 2000 Budget also proposed
a five-year tax reduction plan in order to increase disposable income, spur economic growth andstimulate job creation.  The plan includes a reduction in the middle-income tax rate to 23% within five
years, starting with a two-point reduction to 24% effective July 2000, as well as the restoration of full
indexation of the personal income tax syst em to inflation at the beginning of 2000.
7. The Budget also reduced capital gains and co rporate taxes.  Regarding the latter, the
Government announced its objective to reduce, within five years, the federal corporate income taxrate from 28% to 21% on business income not currently eligible for reduced tax treatment
3, with a
one-percentage-point reduction (from 28% to 27%)  taking effect in January 2001.  The Government
has indicated that the announced personal and corporate tax reduction plan will be updated each year
and that the tax reductions will be accelerated in the 2001 Budget and new options for further tax cuts
will be contemplated.
8. Canada's governments have also made progress in recent years in bringing down the debt-to-
GDP ratio.  Nevertheless, this ratio is still high by international standards, leaving Canada vulnerable
to unexpected developments, such as increases in dom estic interest rates.  Under the Debt Repayment
Plan, the federal debt-to-GDP ratio is expected to decrease from a post-war peak of 71% in 1995-96
                                                     
3 Small businesses are subject to a federal tax rate of about 12% on the first Can$200,000 of taxable
income, while resource, manufacturing, and processing sectors face a rate of about 21%.  Other businesses, suchas services, are subject to the 28% rate.WT/TPR/S/78 Trade Policy Review
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and 65% in 1998-99, to below 50% by 2004-05.  However, in March 1999 the consolidated total debt
of federal, provincial, and territorial governments still amounted to nearly Can$835 billion and over
92% of GDP.  The authorities expect this ratio to decline to 87% in 1999-2000, and to 81%
in 2000-01.
(iii) Monetary policy and exchange rates
9. Monetary policy continues to be based on inflation targeting in combination with a floating
exchange rate system.  Adherence to the inflation targets ensures that Canadian interest rates are
based on low inflation expectations.  Accordingly, as signs of rising inflation pressures have appeared,
the Bank of Canada has increased the Bank Rate four times since May 1999, to 6% in May 2000.
10. Over the past two years, the Bank of Canada has continued to rely on the exchange rate's
flexibility to absorb fluctuations in external ec onomic conditions, such as the sharp decline in 1997 of
world prices of the primary commodities that Canada exports.  The exchange rate decline facilitated a
shift in activity from the primary sector to manufacturi ng and other export sectors.  It also provided an
additional incentive for these sectors to take advantage of a strong U.S. economy.  The Canadian
dollar has been rising steadily against most G7 currencies since 1997, but only marginally reversed itsdecline against the U.S. dollar.
(2) B
ALANCE OF PAYMENTS , TRADE AND INVESTMENT FLOWS
11. Historically, Canada's current account has posted a deficit as residents earn less from abroad
than they spend on goods, services, investment income, and transfers (Table AI.1).  Since 1995,
however, this current account deficit has remained below 2% of GDP; it was reduced considerablyin 1999 (-0.4% of GDP), and swung strongly into su rplus (1.7% of GDP) in the first half of 2000 on
account of the exceptional growth in merchandise exports and a declining deficit on the services
balance.  The deficit on the investment income balance is one of the main causes of the current
account deficit, and partly reflects the servicing of Canada's relatively large net foreign debt.  In the
1999 financial account, portfolio investment registered a large deficit, as Canadians made large net
purchases of foreign stocks while non-residents reduced their holdings of Canadian money market
instruments.  As the substantial merchandise trade surpluses have improved the balance on the current
account, the need for large surpluses in the capital and financial account has eased.  In turn, this has
reduced Canada's international indebtedness-to-GDP ratio, which fell to its lowest level in over
20 years in 1999.
(i) Foreign direct investment
12. Canada has high and growing stocks of both inward and outward foreign direct investment
(Table AI.2).  In 1999, inward FDI rose by almost  9.5%, to reach a stock of Can$240 billion, while
outward FDI reached Can$257 billion.  The exceptionally high share of inward and outward FDI in
GDP also mirrors the process of integration with the U.S. economy:  the flow of FDI in 1999, valued
at Can$37 billion and 4% of GDP, corresponded to large acquisitions by U.S. companies of Canadian
assets in the resource and financial industries.  The purchases contributed to bring the U.S. share of
Canada's total inward FDI stock to 72%, up from 64% in 1990.  Outward FDI was fuelled by
acquisitions of U.S. firms by Canadian companies.  At the end of 1999, 52% of direct investment
abroad was in the United States at the end of 1999, and the remainder was geographically dispersed.
The conclusion of foreign investment agreements has spurred Canadian outward FDI.  For example,
by 1999, Canada ranked fourth among foreign direct investors in Mexico, and second in Chile,encouraged by the stable and secure investment framework provided by free-trade agreements
covering investment (Chapter II(3)(i)).Canada WT/TPR/S/78
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(ii) Merchandise trade
(a) Trade with the United States
13. Following an impressive expansion that continued throughout 1998-2000, Canada has
overtaken the Netherlands and Italy to become the world's sixth largest merchandise exporter.4  The
recent Canadian export boom is largely a result of the robust U.S. economy:  there has been a very
strong correlation between the grow th in U.S. imports and the advance of Canada's exports to the
United States.  In 1999, 86% of Canada's exports we nt to the United States, compared with 82% in
1997 (Table AI.3).  In some sectors, such as text iles, clothing, steel, and automotive products, 90% of
Canadian exports go to the United States.
14. The reliance on U.S. suppliers for merchandise imports has grown less strongly but is
nevertheless high, with over three quarters of imports originating in the United States.  Products forwhich the U.S. share in Canada's imports has increased significantly include non-ferrous metals,
chemicals and other semi-manufactures, automotive products, and textiles.
(b) Trade with other countries
15. The dollar value of exports to the rest of the world (other than the United States) has
decreased since 1997 (Table AI.4).  These exports accounted for 14% of Canada's total exports in1999, down from 18% in 1997.  If transhipment estimates are taken into account both figures would
be 4% higher.
5  A recent study has highlighted the contrast between Canada-U.S. trade, which is
diversified, and the typical pattern of trade with other regions, which involves exports of mainly
resource-based products and imports concentrated in machinery and equipment and consumer goods
(Table AI.5).6  According to this study, based on data prior to the financial crisis in Asia, Canada lost
considerable ground in the emerging East-Asian economies (China;  Republic of Korea;  Hong Kong,
China;  and Chinese Taipei) because in these markets Canada mainly sold products for which demandis increasing at less than the average rate.
16. Imports from the rest of the world have remained stable at around 24% of total imports
(Table AI.6).  However, there are substantial differences across partners.  Imports from Mexico,
Canada's largest trading partner in Latin America, expanded fourfold over the past decade, in large
part reflecting the entry into force of the NAFTA.  Despite the non-reciprocal trade preferencesgranted under the General Preferential Tariff, the Least Developed Country Tariff and the
CARIBCAN, imports from these groups of countries have not increased significantly, with the
exceptions of China and South Asia.  Canada played a role in aiding the recovery from the East Asian
crisis:  imports from East Asia are up by 36% si nce 1996, compared with 27% growth overall, with
exceptional import growth from China, Malaysia and, to a lesser extent, Thailand.
(iii) Trade in services
17. Exports and imports of services have increased at a somewhat slower pace than merchandise
trade since Canada's last Review;  services receipts and payments reached about Can$52 billion and
Can$58 billion in 1999 (Table AI.1).  Commercial services represent nearly half of all services
exports and imports, and have registered the fastest growth, particularly communication, computerand information services, R & D, and engineering services.  The services balance has improved partly
on account of the lower Canadian-U.S. dollar exchange rate, which led to improvements in the
                                                     
4 WTO document Press/175, 6 April 2000.
5 DFAIT (2000a), Box 2, p. 11.
6 Dion (2000).WT/TPR/S/78 Trade Policy Review
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balance on travel spending with the United States.  Canada traditionally records a deficit on its
services account, (Table AI.7) largely because of transportation and travel balances with the United
States.  The latter accounts for 60% of Canada's total services exports.  Aside from the United States,
Canada's main trading partners for cross-border trade in services are the United Kingdom, France,Germany, and Hong Kong, China.
II. DEVELOPMENTS IN TRADE AND INVESTMENT POLICY
18. Canada's trade and investment regime continues to be one of the world's most transparent;
generally liberal market access is granted to all trading partners.  Canada views the WTO as the
cornerstone of its trade policy and the foundation for its  relations with trading partners.
7  Over the
past two years, new preferential trade and inve stment relationships have been pursued, based on
Canada's conviction that multilateral, bilateral, and other forms of liberalization are mutually
reinforcing.  Canada has one of the world's highest FDI to GDP ratios, both inward and outward;  it
also has the highest trade to GDP ratio among G-8 countries.  Canada's expanding network of
preferential arrangements has raised concerns among Members about distortion in trade and
investment patterns.8
(1) INSTITUTIONAL AND POLICY FRAMEWORK
19. Canada's trade and investment framework reflects the particular importance of foreign trade
and investment to the Canadian economy (Chapter I(2)).  The Department of Foreign Affairs and
International Trade (DFAIT) is the leading federal agency for trade and international trade policy
formulation.  It coordinates with the Departme nt of Finance and with Industry Canada for
international investment policy issues9, and consults with provinces as appropriate.  Transparency and
accountability in policy-making are enhanced by the requirement for all federal government
programmes to be evaluated for their cost, rationale, and efficiency by the Office of the AuditorGeneral.
10  Provinces also have independent auditors.
20. One of the distinguishing features of the policy formulation process is the interaction between
federal and provincial governments and the private sector.  An example of this partnership with
respect to trade is Team Canada Inc, a "virtual" trade network of 23 federal departments and agencies
whose international business development programmes and services are accessible to Canadianbusinesses through a single electronic window.
11  Team Canada trade missions bring together business
and government representatives in visits to various  priority countries to ensure that companies take
full advantage of international opportunities.12
21. The Government also consults regularly with the public in the course of the policy
formulation process.  For example, in preparation for the WTO Ministerial Conference in Seattle
in 1999, the authorities established a process of "Consultations with Canadians", in which interested
                                                     
7 DFAIT (2000b).
8 See, for example, WTO (1998), Part D.
9 Industry Canada online information.  Available at:  http://www.ic.gc.ca.
10 For more information see Office of the Auditor General [Online].  Available at:  http://www.oag-
bvg.gc.ca/domino/oag-bvg.nsf/html/menue.html.
11 The online source for export information is available at:  http://www.exportsource.gc.ca.
12 Further online information on the priorities and on the results of Team Canada visits is available at:
http://www.tcm-mec.gc.ca.Canada WT/TPR/S/78
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parties were invited to submit their views regardin g specific trade and investment-related issues.13
This interaction is also encouraged by provincial governments.14
22. Available information suggests significant differences in trade and investment policies and
practices between the federal and provincial governments, as well as across provinces.  For example,
while Alberta has passed legislation that prevents the provision of funding or grants to the private
sector, others appear to provide financial support to private companies (Chapter IV(3)(ii)).15  In order
to mitigate the effect of these policy differences, since 1995, the Agreement on Internal Trade (AIT)
has set transparency requirements on each governments' legislations, regulations, procedures,
guidelines, and administrative rulings as they relate to internal trade.  The AIT aims to "reduce and
eliminate, to the extent possible, barriers to the free movement of persons, goods, services and
investment within Canada, and to establish an open, efficient and stable domestic market".  The AITspecifies some 11 sectors or policy instruments that offer the greatest potential for the reduction of
barriers:  government procurement;  environmental protection;  consumer-related measures and
standards;  labour mobility;  investment;  agricultural and food products;  alcoholic beverages;
communications;  transport;  natural resource processi ng;  and energy.  Obstacles to internal trade also
have a bearing on external trade and investment.
23. Developments since 1998 include the entry into force of the Second Protocol of Amendment
revising the AIT, and of the Third Protocol of Amendment.  The Second Protocol includes lists of
remaining provincial presence and residency requirements.  The Third Protocol extends the AIT's
procurement disciplines to municipalities, municipal organizations, school boards and publicly funded
academic, health, and social service entities (see also Chapter IV(5));  all provinces and territories
except British Columbia and the Yukon have subscribed to the new rules.  Talks are still ongoing to
liberalize the procurement of federal and provincial crown corporations, many of which are exemptfrom the provisions of the AIT despite being major purchasers of goods and services.
16  Negotiations
have been completed to reconcile extra-provincial corporate registration and reporting requirements,
thus eliminating the filing of duplicate information.
(2) PARTICIPATION IN THE WTO
24. Canada is a founding Member of the World Trade Organization.  Canada's WTO
Implementation Act gave effect to the WTO Agreement and to various laws to conform to Canada's
WTO obligations.  The notifications made by Canada to the WTO since mid-1998 in the context of
the implementation of the Marrakesh Agreement are described in Chapter III.  The framework of
federal-provincial coordination has helped to promote the participation of provinces in the notification
process and more generally in WTO matters, although this participation remains limited.  While someprovincial domestic support programmes have been notified to the Committee on Agriculture,
provinces have not advised the Federal Government that they have programmes to be notified to the
WTO Committee on Subsidies and Countervailing Measures.  Provincial entities have not been listed
in the Agreement on Government Procurement.  No subfederal technical regulations have been
notified to the WTO Committee on Technical Barriers to Trade since 1996.  Market-openingamendments to provincial legislation on professional services, implemented between 1994 and 1996,
were notified to the WTO in late 1998.
                                                     
13 Further online information on these consultations is available at:  http://www.dfait-maeci.gc.ca/tna-
nac/consult-e.asp. See also House of Commons (1999).
14 For example, in the case of Alberta, online information is available at: http://www.gov.ab.ca/iir/
trade/documents/roundtable_report.htm.
15 Online information on Alberta is available at:  http://www.alberta-canada.com/ startbus/finance.cfm.
16 Internal Trade Secretariat online information is available at:  http://www.intrasec.mb.ca.WT/TPR/S/78 Trade Policy Review
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(i) Trade policy priorities
25. Since the last Review of Canada in 1998, the Federal Government has actively campaigned in
favour of increased transparency in WTO councils and committees, so as to improve public and
private sector understanding of the WTO and theref ore build public support for trade and investment
liberalization.  In particular, the Government proposed that a portion of the WTO Secretariat budget
fund regular outreach initiatives such as symposia, workshops, and the WTO website.  Canada alsoposts on its website background information on its positions on WTO disputes in which Canada is
involved, and, upon request, makes available to the public Panel and Appellate Body submissions, to
enhance the transparency of the WTO dispute settlement system.
17  In July 2000, Canada proposed
that its December 2000 Trade Policy Review meeting be webcast on the Internet.18
26. At Seattle, the Government of Canada sought to extend the Uruguay Round's "built-in
agenda", and supported broadening participation in existing sectoral agreements.  Going beyond
market access, Canada sought a round that improves and expands multilateral rules and disciplines.
More specifically, Canada supported including competition policy within a broadly based negotiatingagenda;  the Government was continuing to consult with Canadians on the possible inclusion of
investment (see below).  On dispute settlement, Canada proposed to enhance transparency and
improve mechanisms for implementation of DSB recommendations and rulings.  In the context of all
future trade negotiations, Canada intends to retain its capacity to regulate in the public interest in areas
such as health, education, and culture.  Canada has circulated several discussion papers and proposalsthat reflect its interests in a new round, including papers on market access, agriculture, services,
dispute settlement, anti-dumping, biotechnology, coherence, trade and environment, trade and
development, trade and labour, transparency, subsidies and countervailing measures, and electroniccommerce.
19
(a) Agri-food trade
27. In the current WTO negotiations on agriculture, Canada seeks substantial market access
improvements, elimination of export subsidies, and significant reductions or elimination of trade-
distorting domestic support.20  A key theme underlying Canada's approach is to achieve these reforms
in a way that levels the playing field, while preserving the ability to operate "orderly marketing
systems", such as the supply management systems in poultry, dairy, and egg production, and the
Canadian Wheat Board (Chapter III(7)).
28. Canada attaches high importance to protecting human, animal, and plant life and health.  At
the same time, concerns about the misuse of sanitary and phytosanitary measures as barriers to trade
in some of its export markets are also of importance to Canada because of the significant contributionagri-food makes to total exports.  Canada has argued in a number of WTO cases that trading partners
were not meeting their multilateral obligations under the WTO Agreement on the Application of
Sanitary and Phytosanitary Measures (Table AII.1).  The European Union's non-implementation of
the WTO ruling on beef produced using growth hormones led Canada to retaliate with punitive tariffs
under WTO dispute settlement rules.
29. As a relatively intensive producer of foods derived from biotechnology (i.e. containing
genetically modified organisms - GMOs), Canada has reiterated its concerns, in the WTO, over
                                                     
17 Available at:  http://www.dfait-maeci.gc.ca/tna-nac/dispute-e.asp.
18 WTO document WT/TPR/W/26, 13 July 2000.
19 DFAIT online information "Trade Negotiations and Agreements".  Available at:  http://www.dfait-
maeci.gc.ca/tna-nac/.
20 Canada's trade policy on agriculture can be found in Agriculture and Agri-Food Canada online
information.  Available at:  http://www.agr.ca.Canada WT/TPR/S/78
Page 9
mandatory labelling requirements imposed by a number of Members on foods derived from
biotechnology, "which appear to go beyond a scientifically-based food safety objective".21  I n
this context, a voluntary labelling standard being developed in Canada was cited (Chapter III(5)(iii)).
Canada's proposal for a WTO working party on biotechnology was designed to consider the adequacy
and effectiveness of existing rules on trade in products developed through biotechnology.22
30. Canada was a participant in the negotiations to conclude the Cartagena Protocol on Biosafety
to the Convention on Biological Diversity, and will be affected by its framework of rules and
obligations upon ratification.  On the conclusion of the negotiations on the Protocol, Canada
recognized "the right of every country to restrict the import of living modified organisms that would
harm its bio-diversity.  That is why Canada supports the precautionary approach which allows nations
to take action even in the absence of full scientific certainty".23  However, Canada has not yet signed
or ratified the Protocol, and has thus not taken on any of the Protocol's obligations.
(b) Trade in services and electronic commerce
31. In a statement prepared in the context of this Review, the Government has indicated that, in
the ongoing negotiations to further liberalize trade in services, Canada seeks to strengthen
multilateral, legally enforceable rules covering international trade in services, and to obtain improvedaccess to foreign markets for Canadian service firms.  At the same time, Canada will continue to
safeguard its right to regulate in the pursuit of its national policy objectives.  In preparation for these
negotiations the Government has embarked on a wide ranging exercise of analysis and consultation
with the provincial/territorial governments, priv ate sector, and other stakeholders with a view to
identifying Canadian negotiating interests and objectives.  The Minister for International Trade has
indicated that Canada's public health and public education systems will not be jeopardized in these
negotiations.  Further, Canada will not take on any new obligations that will restrict the Government'sability to achieve its cultural policy objectives.
32. Canada supports a free-trade environment for electronic commerce consistent with WTO
principles and with its own economic and other domestic policy objectives, including consumer and
privacy protection.  Recent initiatives in this area include a new federal law related to privacy and
electronic documents, and a decision by the Canadian Radio-Television and TelecommunicationsCommission regarding the regulation of new media services on the Internet (Chapter V(4)).  An
advisory committee on electronic commerce and taxation has stressed the importance of international
cooperation and of tax neutrality.
24
(c) Market access for developing countries and other issues
33. Canada's market access regime for developing countries includes the system of tariff
preferences granted under its "Generalized Preferential Tariff" (GPT) and CARIBCAN (Table AII.2).
In May 2000, the GPT was extended to Bosnia and Herzegovina, and to the former Yugoslav
Republic of Macedonia.  Approximately 2% of total imports enter under GPT treatment, considerably
less than the share of imports originating in GPT countries (13%).  This is because many Canadian
MFN tariffs are duty free, and importers do not therefore need to claim GPT treatment.  Canada hasparticipated in WTO trade facilitation measures in favour of developing countries.  Canada supports
the use of special and differential measures in favour of developing countries when this enables
                                                     
21 WTO document G/TBT/W/134, 23 May 2000.
22 WTO document WT/GC/W/359, 12 October 1999.
23 Environment Canada online information.  Available at:  http://www.ec.gc.ca/press/bio_n_e.htm.
24 Canada Customs and Revenue Agency online information.  Available at:  http://www.ccra-adrc.gc.
ca/tax/business/ecomm/ecomedoc.doc.WT/TPR/S/78 Trade Policy Review
Page 10
countries to adjust to competition so as to enhance international trade consistent with WTO rules and
to experience economic growth.25
34. Canada's Least Developed Country Tariff provides duty-free access for close to 90% of all
tariff items.  Nevertheless, access to Canadian markets for some products of main interest to least
developed countries (e.g. agri-food, textiles, and clothing) remains limited by high tariffs or quotas
(Chapter III).  The federal and provincial governments have thus been encouraged to consult withfirms producing import-sensitive products with a view to improving market access for those goods.
26
The initiative announced in May 2000 by the Quad (Canada, European Union, United States, Japan)to grant duty-free and quota-free access to least developed countries for "essentially all" imports, does
not englobe certain important agri-food, textiles, and clothing products.
27  In September 2000, Canada
implemented an order expanding duty-free access for over 550 additional tariff lines(Chapter III(1)(ii)).  Refined sugar and out-of-quot a agri-food products continue to be excluded, as
well as most textiles, clothing, and footwear.
35. Given their protectionist potential, Canada does not support the enforcement of core labour
standards through trade measures.  Canada cooperates with its NAFTA trading partners on labour
issues under the North American Agreement on Labour Cooperation (NAALC)
28, and with Chile
under the Canada-Chile Free Trade Agreement.  The NAALC provides for fines enforceable in the
domestic courts for disputes targeting Canada;  if the United States or Mexico fail to pay the monetary
assessment, complaining parties may suspend NAFTA tariff benefits.  In principle, the provinces are
not covered by the NAALC, but some have joined through declarations notified to the parties.
(ii) WTO dispute settlement
36. The Canadian Government has participated intensively in consultations and dispute
settlement available under the WTO Dispute Se ttlement Understanding (DSU), based on the
conviction that Canada benefits from a system based on rules, norms, and procedures rather than on
the unilateral exercise of economic leverage.  Canada has participated in nearly a third of all WTO
dispute settlement cases (consultations, mutually agreed solutions, and panels) since the WTO's
inception.29  Canada has participated in about one quarter of consultations requested since
September 1998.
37. Canada has also reserved third-party rights in a number of cases where it did not have a direct
commercial interest (e.g. the EU/U.S. banana disp ute).  This reflects an interest in broad WTO
jurisprudence as, in Canada's view, the dispute settlement system also serves to develop a body of
case law, further enhancing the system's stability and predictability for Canadian exporters.  The
Government views a clear and coherent rules-based system as ensuring non-discriminatory access toforeign markets on predictable terms.
38. Since September 1998, trading partners have questioned Canadian measures on only one new
matter (term of patent protection, Table AII.1).  Panel findings regarding earlier cases cover:  patent
protection for pharmaceuticals;  market access;  pricing and export policy on dairy products; support
to the periodicals publishing industry;  measures related to the export of civilian aircraft;  and theautomotive trade regime (Chapter III).
                                                     
25 WTO document WT/GC/W/349, 11 October 1999.
26 See, for example, House of Commons (1999), pp. 5-17.
27 WTO document WT/GC/M/55, 16 June 2000.
28 NAALC online information.  Available at:  http://www.naalc.org.
29 WTO document WT/DSB/16/Add.1, 22 October 1999.Canada WT/TPR/S/78
Page 11
(3) DEVELOPMENTS IN INVESTMENT POLICIES
(i) Foreign investment policy
39. Canada officially seeks to promote its advantages as an investment destination, except in
areas of special sensitivity where restrictions continue to exist (Table II.1).  Investment policy for
these sectors, which include financial services, transportation, telecommunications and "cultural
sectors" (e.g. broadcasting, film distribution), is implemented by the government departments
responsible for those sectors.  Further, regulators are in some cases allowed to place limits on the
issue and transfer of shares of corporations in these sectors.  As discussed below, restrictions to
foreign direct investment (FDI) in certain service activities have had implications on domestic
competition policy.
40. In addition, the Investment Canada Act (ICA) of 1985, which seeks to encourage investment
in Canada that contributes to economic growth and employment opportunities, provides for the review
of significant acquisitions of control of Canadian businesses by non-Canadians to ensure "net benefit
to Canada".  For the year 2000, foreign acquisitions exceeding a threshold of Can$192 million are
reviewable (the threshold is adjusted annually), as well as foreign acquisitions exceeding
a Can$5 million threshold in transport, financial services, and cultural sectors (Table II.1).  Exceptfor investments in the cultural sectors, the ICA applies only to acquisitions of Canadian
companies and not to greenfield investments.  The authorities have noted that in 1999, of the more
than 700 investments notified under the ICA,  only 35 were reviewed and none was denied.
41. These restrictions and review provisions have been criticized by trading partners
30;  however,
that they have accommodated an exceptional growth of inward FDI seems consistent with the
authorities' view that the review of foreign acqui sitions of Canadian businesses and the promotion of
Canada as a location for investment are mutually reinforcing policy objectives (Chart II.1).
42. Certain of Canada's free-trade agreements, notably NAFTA, also include provisions relating
to investment by persons, both legal and natural,  who are from parties to the agreement (see below).
By and large, however, the review process and rela ted limitations provided by the ICA also apply to
preferential partners.  In the Investment and Services Working Group, NAFTA members have
exchanged information on non-conforming investment measures at the subnational level.31
                                                     
30 See, for example, WTO (1998), Part D, "Advance Written Questions by Hong Kong, China, Japan,
and the United States".
31 NAFTA online information.  Available at:  http://www.nafta-sec-alena.org/english/nafta/
anx1cda.htm.WT/TPR/S/78 Trade Policy Review
Page 12
Table II.1
Selected investment restrictions and controls by sector, 2000
Sector Level of government (legal base) Limitation
Notification and review provisions
All sectors Federal (Investment Canada Act (ICA)) All acquisitions of control of Canadian businesses by
non-Canadians must be notified; those exceedingCan$192 million are reviewed.
Uranium production Federal (ICA)
Transport services
Financial servicesReview thresholds for all countries:  Can$5 million for
direct acquisitions (i.e. foreign acquisitions of foreign-
owned businesses in Canada;  Can$50 million for indirectacquisitions if the assets in Canada are 50% or more ofthe assets of the targeted company.
Cultural industries (publishing, film,video, music, and broadcasting)Federal (ICA) Review of all direct acquisitions over Can$5 million
(Can$50 million for indirect acquisitions).  All otherinvestments must be notified and may be subject toreview.
Ownership limitations
Fishing Federal (Fisheries Act) Only Canadians or Canadian-controlled corporations are
permitted to obtain fishing licences.  Canadian fish-processing companies that have more than 49% foreignownership are not permitted to hold commercial fishing
licences.
Air transport Federal (Canada Transportation Act) Foreign ownership of an airline is limited to 25%.
Book publishing and distribution Federal (ICA and supplementary policy
guidelines)Foreign investment in new businesses is limited to
Canadian-controlled joint ventures.
Foreign acquisition of existing Canadian-controlled
businesses is allowed only if:
(a) The business is in clear financial distress and;(b) Canadians have had full and fair opportunity to
purchase.
Indirect acquisitions are permissible subject to a net
benefit test.
Broadcasting Federal (Broadcasting Act) Foreign ownership of a radio or television station is
limited to 20% of voting shares (maximum 33.3% in thecase of a parent corporation).
Film distribution Federal (ICA) Foreign acquisition of a Canadian-controlled distributor
is not allowed.  Foreign investment in new distributionbusinesses is permissible only for importation anddistribution of proprietary products.  (the importer ownsworld rights or is a major investor).  Direct or indirectacquisition of foreign distribution businesses in Canada
by foreign-owned companies is permissible only if the
investor undertakes to reinvest a portion of its Canadianearnings "in accordance with national and culturalpolicies".
Financial services Federal (Bank Act) Individual ownership is limited to 10% of a Schedule I
bank, regardless of nationality (however, see text forupcoming changes).
Provincial laws Foreign ownership is limited to 10% individually and
25% collectively of provincially regulated trust and loancompanies and securities firms in several provinces.
Insurance agents Prince Edward Island Only residents or corporations established in the province
may obtain licences.
Insurance services and other servicesauxiliary to insuranceQuebec (Loi sur les assurances) Non-residents may not acquire more than 30% of the
voting shares of a Quebec-chartered insurance companywithout ministerial approval.
British Columbia (Financial Institutions Act) Incorporation, share acquisition or application for
business authorization, where any person controls or willcontrol 10% or more of the votes of the company, is
subject to ministerial approval.
Quebec, Saskatchewan, British Columbia Mandatory motor vehicle insurance is provided by public
monopoly.
Telecommunications Federal (Telecommunications Act) Foreign ownership of Canadian common carriers is
limited to 20% ownership, 33.3% indirect; and 46.7%
combined direct and indirect foreign ownership of voting
shares.
Source: WTO Secretariat, based on information provided by the Government of Canada.Canada WT/TPR/S/78
Page 13
18.6
5.212.419.7
7.114.823.9
9.526.9
25.9
10.927.7Chart II.1
Inward and outward foreign direct investment, 1985-1999, selected years
Per cent of GDP
Canada
G-7 countries
United Nations (2000), World Investment Report . Source :Inward FDI Outward FDI
1985  1990  1998  1999  1985  1990  1998  1999  1985  1990  1998  1999  
(ii) International investment policy
43. Canada continues to support the ongoing "analytical and educative" work programme within
the WTO Working Group on the Relationship between Trade and Investment.  Over the past two
years, the Government has undertaken consultations with domestic stakeholders to seek their views on
investment issues, including the possibility of a WTO agreement on investment.  Canada's support for
the launching of negotiations on a WTO investment agreement hinges, in part, on the outcome ofthose consultations, reflecting public disquiet about the unfinished OECD negotiations on a
Multilateral Agreement on Investment and lukewarm business interest.
44. Canada has gained experience on international investment agreements with the
implementation of the NAFTA Chapter 11 investment provisions, notably including investor-state
dispute settlement provisions.  The Canada-Chile FTA contains similar investment provisions.  The
Government has partly attributed the recent strong growth of Canadian FDI into these countries to the
enhanced security for Canadian investors provided by these provisions.
32  The arbitration of investor-
state investment disputes is also available under most of Canada's bilateral foreign investment
protection agreements.33  Arbitration provisions have been scheduled as an Article II exemption to the
                                                     
32 DFAIT (2000b).
33 Since January 1998, Canada has concluded Foreign Investment Protection Agreements with
Armenia, Costa Rica, Lebanon, Panama, Thailand, Uruguay, and Venezuela.  Negotiations are under way with
Brazil, China, Colombia, India, and Russia.  Double Taxation Agreements have been concluded with Algeria,Austria (Amending Protocol), Bulgaria, Chile, Indonesia, Japan (Amending Protocol), Jordan, Kyrgyzstan,Lebanon, Luxembourg, Portugal, and Uzbekistan.WT/TPR/S/78 Trade Policy Review
Page 14
GATS and have been the subject of questions from WTO Members as part of the mandated review of
Article II (MFN) exemptions.34
45. NAFTA investor-state dispute settlement provisions have also been used by private
companies to challenge government policy in a number of areas (e.g. ban on the fuel additive
MMT).35  Since Canada's previous Review, arbitration continued in a dispute, advanced by the U.S.
firm S.D. Myers, concerning Canada's impositi on of a 1995 prohibition on the export of PCB waste to
the United States.  In March 1999, arbitration was started against Canada by a U.S. company (Pope &
Talbot), claiming discrimination in Canada's implementation of the Canada-U.S. Softwood Lumber
Agreement.  Another U.S. company, Sun Belt Water Inc, alleges breaches of NAFTA Chapter 11
rules, by court and government officials in British Columbia, related to a contract for water exports.
An arbitration has also been commenced by United Parcel Service of America Inc..  The claimalleges:  breaches of the national treatment and minimum standard of treatment obligations under the
NAFTA, as well as obligations respecting monopolies and state enterprises;  and inter alia , that
Canada gave more favourable treatment to Canada Post relative to private parcel and courier
companies as regards custom treatment and failed to ensure that Canada Post did not engage in cross-
subsidization of its courier business.
46. In this light, the authorities have stated that in any multilateral investment negotiation, Canada
would want to safeguard a government's right to regulate, in the public interest, in "strategic" sectors
such as health, education, environmental protection, and culture.  In discussion with NAFTA partners,
Canada is seeking to clarify certain provisions of  the Investment Chapter, including the definition of
expropriation.  Canada is also in favour of increased transparency in the investor-state arbitration
process.
(4) D
EVELOPMENTS IN PREFERENTIAL TRADE AND INVESTMENT RELATIONS
47. One of the Government's key policy priorities is the management of the relationship with the
United States, which accounts for a large proportion of Canada's exports and of foreign direct
investment (Chapter I).  To promote trade and inve stment diversification, preferential links are being
forged with other partners in line with "Canada's firm commitment to trade and investment
liberalization on all fronts".36  Most of Canada's partners to reciprocal preferential trade agreements
are located in the Americas (Table AII.2).  Negotiations were under way in mid 2000 to finalize a
free-trade agreement with the European Free Trade Association.  Free-trade negotiations with Costa
Rica were launched in July 2000.37  The possibility of negotiating a bilateral free-trade agreement
with Singapore is being explored.38
48. Canada's relations outside the Americas generally take place on an MFN basis or, in the case
of developing countries, under the GPT to the LDCT.  Canada is a member of the Asia Pacific
Economic Cooperation (APEC) process.  According to the APEC Bogor Declaration, Canada has
committed itself to MFN "free and open trade and investment" by 2010.39  The pace of Canada's
progress to achieve this goal is dictated by its voluntary commitments specified in its Individual
Action Plan.
                                                     
34 See also WTO documents S/C/W/140, 15 May 2000, and S/C/M/44, 21 June 2000.
35 For details see WTO (1998), Chapters II(4) and III(3)(i).
36 DFAIT (2000b).
37 DFAIT online information.  Available at:  http://webapps.dfait-maeci.gc.ca/minpub/ Publication.asp?
FileSpec=/Min_Pub_Docs/103533.htm .
38 DFAIT online information.  Available at:  http://webapps.dfait-maeci.gc.ca/minpub/Publication.asp?
FileSpec=/Min_Pub_Docs/103434.htm .
39 APEC Secretariat online information.  Available at:  http://www.apecsec.org.sg.Canada WT/TPR/S/78
Page 15
(i) Preferential trade in the Americas
(a) Trade relations with the United States and Mexico
49. Canada's trade with the United States is now essentially duty free;  Canada restricts only
imports of the supply-managed (mostly dairy and poultry) agri-food products (Chapter III(2)).  Over
the last two years, the share of Canada's trade a nd foreign investment with the United States has
continued to increase (Chapter I), partly in response to the economic integration made possible by free
trade and investment under the NAFTA.  There is recognition that this leaves the Canadian economyvulnerable to cyclical swings in the U.S. economy.  In this context, extending NAFTA preferences
multilaterally could help diversification, and further improve efficiency and resource allocation.
50. Bilateral trade flows between Canada and the United States (about Can$1.5 billion daily)
have remained to a large extent free of problems, with the exception of anti-dumping and
countervailing measures.  Canada believes that the use of these measures between integrated markets
is inappropriate and has sought their reform and eventual elimination in Canadian-U.S. trade.
Meanwhile, some seventeen disputes involving Canada were active at some point, under NAFTA's
Chapter 19 (anti-dumping and countervailing), during the period September 1998 to April 2000.  Allexcept two cases related to anti-dumping duties, and most cases concerned trade in steel.  In general, a
high share of all investigations subject to Chapter 19 review are challenged before a Chapter 19 Panel.
All panels completed between September 1998 and April 2000, involving either Canadian goods or
agencies, found in favour of Canada.
51. Very few tariffs remain on items imported from Mexico, Canada's other NAFTA partner;
those remaining, with the exception of the supply-managed dairy and poultry products, are scheduled
for elimination on a ten-year staging period (to be completed by 2003).  Canada and Mexico have
accelerated tariff elimination twice since 1997.  Among recent trade policy developments, Canada and
Mexico have signed a commercial satellite services agreement and a Memorandum of Understanding
on the acceptance of safety standards testing for telecommunications and information technology
products, and have implemented an agreement on code-sharing in air transport services.  Cooperation
has also been enhanced regarding SPS inspections and the resolution of disputes in fruit and vegetabletrade.  From the implementation of NAFTA in 1994 to the end of 1999, imports and exports between
Canada and Mexico doubled.  Canadian direct inve stment in Mexico has increased tenfold since 1990
(Chapter I).
(b) Other preferential trade relations in America
52. Tariff cuts have been accelerated between Canada and Chile since the entry into force of the
1997 Canada-Chile Free Trade Agreement (CCFTA).  Canadian tariffs on remaining goods will bephased out by 2003 except on certain supply-man aged dairy and poultry products.  Until
1 January 2000, the CCFTA also provided for minimum margins of preference for Canadian goods if
Chile reduced MFN tariffs, which has been the case in each year since 1998.  Bilateral trade in goods
has accelerated;  foreign investment has expanded faster and Canada has become the second-largest
foreign investor in Chile.
53. In Toronto, in November 1999, Canada hosted the first negotiating meeting of Free Trade
Area of the Americas (FTAA) Ministers, which includes all countries of the Western Hemisphere
except Cuba.  Ministers agreed, inter alia , to a common approach on agricultural export subsidies
negotiations in the WTO, and adopted a package of business facilitation measures to be implemented
by 1 January 2000.  A target date of 2005 has been set to conclude the FTAA negotiations.
40
                                                     
40 FTAA online information.  Available at:  http://www.alca.ftaa.org.WT/TPR/S/78 Trade Policy Review
Page 16
(ii) Other preferential relations
54. Negotiations have continued on a Canada-EFTA Free Trade Agreement, with emphasis on
tariff elimination and trade facilitation.  However, Canada's supply-managed dairy, poultry, and egg
sectors will not be covered;  nor will it include new obligations in areas such as market access,
services, investment, intellectual property, a nd government procurement.  According to the
authorities, the Agreement will introduce a new concept in terms of cooperation on competitionpolicy.  The authorities expected the agreement to be concluded by the end of 2000, and enter into
force in mid 2001.  The trade agreement with EFTA will be the first free-trade bridge with Europe.
Relations with the EU, Canada's second-largest trading and investment partner, take place under the
WTO Agreement and bilateral initiatives such as the EU-Canada Trade Initiative.
55. Three years into the 1997 Canada-Israel Free Trade Agreement (CIFTA), bilateral trade
between the two countries is increasing steadily, mainly due to the absence of tariffs on industrial
products and the reduction of tariffs on many agriculture and agri-food products.  Although, in
practice, the CIFTA covers the territory where Israel’s customs laws apply (this includes the West
Bank and Gaza following the signing of the Paris Protocols in 1995), the Government of Canada
agreed to negotiate separate arrangements with the Palestinian Authority.  In February 1999, Canadaand the Palestine Liberation Organization on behalf of the Palestinian Authority signed the Joint
Canadian-Palestinian Framework on Economic Cooperation and Trade, designed to improve market
access and customs procedures on a reciprocal basis.  Although the Framework exactly mirrors the
CIFTA, it also states Canada’s separate free-trade relationship with the Palestinians.
III. MARKET ACCESS IN GOODS
(1) T
ARIFFS AND OTHER CHARGES AND TAXES AFFECTING IMPORTS
56. Over 90% of Canada's imports, enter duty free either under MFN or preferential rules.
Canada's trade weighted average tariff was 0.87% in 1999.  MFN tariffs, collected on the landed value
of imports, average 7.2% (Chart III.1);  nearly half of the items are zero-rated.  Further, all tariffs are
rounded down to the nearest half percentage point, and tariffs declining to below 2% are
automatically eliminated.  Customs duties in 1999/2000 accounted for 1.3% of total budgetary
revenue, down from 1.8% in 1997/98 and 2.3% in 1995/96.41
57. A simple average MFN tariff of over 13% on dutiable items reflects sizeable tariff barriers
concentrated in a few of Canada's sensitive sectors, which are often also of particular interest to
exporters from developing countries.  The products are mainly certain foods, alcoholic beverages,
textiles, clothing, and ships and boats.  As a result, dispersion is relatively high in the Canadian
tariff.  Several drawback, concession, and remission schemes are used to offset the cost-risingeffect of tariffs in an otherwise highly competitive Canadian market.  Nearly 5% of tariff lines are
non-ad valorem ;  concentrated in the agri-food sectors, they mask in some cases high levels of
protection.  Some tariffs depend on end-use.
42
MFN suppliers compete in virtually all products with Canada's preferential partners, particularlyproducts from the United States.  Tariff concessions in favour of developing countries under theGeneralized Preferential Tariff are relatively modest compared with tariff preferences in favour of
                                                     
41 Department of Finance online information.  Available at:  www.fin.gc.ca/afr/2000/frt.001e.
html#table3.
42 Canada Customs and Revenue Agency online information.  Available at:  http://www.ccra-
adrc.gc.ca/E/pub/cm/d1185ed/d1185ed.html.  The agency, formerly Revenue Canada, enforces Canada's tax,trade, and border legislation.Canada WT/TPR/S/78
Page 17
Mexico and Chile under free-trade agreements.  Canada does not grant MFN status to imports from
Albania, the Democratic People's Republic of Korea, Libya, and Oman, which are subject to the
General Tariff currently levied at 35% on most products.  However, Canada is in the process of
granting MFN status to recently-acceded countries.   In August 1999, retaliatory tariffs of 100% were
imposed on EU exports of beef, pork (above a tariff quota), cucumbers, and gherkins in response to
the European Union's non-implementation of the WTO dispute settlement ruling on Canadian beefproduced using growth hormones (Table AII.1).
26.0
7.833.8
0.86.69.2
0.64.97.8
6.0
0.64.57.26.5
1.85.27.7 7.431.5
24.729.7
22.9 22.930.1
0510152025303540
Agriculture
(WTO
negotiations)Agriculture,
forestry and
fishingFood, beverages
and tobaccoMining Manufacturing
(excl. food,
beverages and
tobacco)TotalChart III.1
MFN tariff averages 1996-2000, selected years, and final bound tariff (2004)
Per cent
a
Note:
Source:ISIC classification.
Data for 1996, 1998 and 2000 exclude in-quota tariffs.  Final bound rate (2004) includes
ad valorem  tariffs only.
WTO Secretariat calculations , based on data provided b y the Government of Canada.aaa
a199619982000Bound
(i) MFN tariffs
(a) Bindings
58. All tariff lines are bound except on some petroleum and gas products, electricity, and most
ships and boats.  Canada has communicated to the WTO its revisions resulting from the introduction
of the HS96 nomenclature;  these have been certified by WTO Members.43  In addition, Canada has
notified its final bound tariff.  In general, Canada's tariffs are bound only slightly above the appliedlevels (Chart III.1).
                                                     
43 WTO document WT/Let/329, 23 February 2000.WT/TPR/S/78 Trade Policy Review
Page 18
(b) Recent MFN tariff reductions
59. Few changes have taken place in Canada's applied tariffs since the overhaul of the tariff
regime in 1998.  In January 2000, MFN tariffs averaged 7.2%, down from 7.8% in 1998
(Chart III.1).44  The reduction represents the implementation of the following WTO commitments:
- reductions on textiles and clothing, which are being implemented on a ten-year schedule
ending January 2005, and final reductions in January 1999 on other remaining industrialproducts, as provided by Canada's Market Access Schedule;
- reductions implemented in January 1999 and January 2000 (final) under the Agreement on
Agriculture;
- reductions implemented in January 1999 and January 2000 (final) under the Information
Technology Agreement
45;  and
- reductions implemented in July 1999 under the second product coverage review of the
Agreement on Pharmaceuticals46;  these reductions added 639 products to the list of products
imported MFN duty-free by participating Members.
60. Some 47% of HS eight-digit tariff items are duty free (Table AIII.1), up from 45% in 1998,
32% in 1996 and 26% in 1994.  The average tariff on dutiable items is 13.4%, down from 14%in 1998.  As measured by the coefficient of variation (standard deviation divided by the mean), tariff
dispersion has increased from 3.1 to 3.5;  it remain s high reflecting the contrast between duty-free
trade on most items and substantial protection afforded to selected activities.  The largest reductions
between 1998 and 2000 have occurred in agriculture (ISIC1 – Chart III.1) where tariff protection has
decreased to 6%.
(c) Tariff peaks, drawbacks, and duty concessions
61. MFN tariffs exceed 15% on 700 tariff lines, in addition to the 132 tariff lines covered by out-
of-quota tariffs (section (2) below).  The 700 lines consist mostly of textiles and clothing products,
together with wine and cider, sugar, footwear, vegetables during the domestic production season, and
cut flowers;  tariffs on ships and boats are set at 25%.  In the fabricated metal products industry, tariffs
continue to exceed 12% for stamped, pressed, and coated metal products as well as most structural
metal goods, wire gauze, iron fittings for coffins, knives, scissors, secateurs, pottery, and china.  Hightariffs impose costs on users, in addition to the administrative costs of operating remission schemes,
and encourage users to purchase products imported from duty-free sources.
62. To offset the costs imposed by high tariffs on these products, a number of tariff relief
measures are in place;  these include tariff reductions on manufacturing inputs, and duty drawback or
remission schemes.
47  For example, in the clothing industry, Canadian producers have traditionally
relied on MFN imports for several key inputs despite high MFN tariffs.  In practice, producers may
                                                     
44The tariff analysis in this section is based on ad valorem  tariffs, ad valorem  equivalents of
non-ad valorem  duties when available and, if not, the ad valorem  component of alternate, compound, and other
mixed duties.   Unless specified, the analysis includes both in-quota and out-of-quota tariffs in the case of
agricultural products su bject to tariff quotas.
45 WTO document G/MA/TAR/RS/19, 16 April 1997.
46 WTO document WT/Let/316, 2 November 1999.
47 Canadian Customs and Revenue Agency online information.  Available at:  http://www.ccra-
adrc.gc.ca.Canada WT/TPR/S/78
Page 19
apply to the Canadian International Trade Tribunal for tariff relief;  they must indicate the availability
of domestic substitutes, prices, and the estimated domestic market for the end product.  Twenty-seven
applications were filed in the two years to March 200048;  in 1998-99 the value of imports that entered
under such relief was Can$21 million, or 0.71% of imports.  For other products, requests for reviews
are conducted by the Department of Finance.  In all cases, tariff relief is made by Executive Order
amending the Customs Tariff.
63. Duty remission and drawback measures provide tariff relief when imported goods are used for
certain purposes or under certain conditions.  The vast majority relate to measures implementing the
Auto Pact;  six orders provide relief on certain textiles and clothing products.49
64. MFN tariffs on certain motor vehicles stand at just over 6%.  Companies established under
the Auto Pact, however, may import those vehicles duty free from any MFN source, under various
remission orders, subject to certain performance requirements for domestic production-to-sales and
Canadian value added.  This has been the subject of a recent WTO Panel (Table AII.1).  The Panel
found that the import duty exemption was not consiste nt with the MFN principle; and that the import
duty granted conditional upon production-to-sales requirements constituted a subsidy conditionalupon export performance.  Following the confirmatio n of these findings by the Appellate Body,
Canada advised WTO Members that it would implement the WTO ruling in two phases.  Canada
removed the duty remission schemes in September 2000.  Canada has until February 2001 toimplement the non-subsidy findings;  details of how this would be done have not been disclosed.
(ii) Preferential tariffs and rules of origin
65. As a result of the ten preferential tariff schemes (and of the drawbacks and concessions
mentioned above), the share of customs duties in imports declined from 1% in 1997 to 0.87% in 1999.
Since 1998, the largest tariff reductions concerned imports from Mexico and Chile:  Mexico's average
tariff decreased from 4.4% to 3.3%, and Chile's average tariff decreased from 4.1% to 3.3%.Preferential access entails a significant advantage in areas protected by high MFN tariffs, and this is
likely to favour trade from preferential suppliers (Table AIII.1).  As described in Chapter I(2),
Canada's preferential agreements have contributed to above average growth in trade flows withpreferential partners, amplifying in particular Canadian-U.S. interdependence.
66. In September 2000, Canada implemented an Order expanding duty-free access for imports
from least developed countries covering over 550 additional tariff lines, including iron and non-alloy
steel, certain chemicals, prepared foods such as pasta, confectionery products, beverages, cut flowers,
and crustaceans.  As a result of this initiative, the number of non- ad valorem  tariffs was halved to
179 lines;  the share of duty-free lines increased from 83% to 90%;  the average tariff declined from
4.6% to 4.3% and the average of dutiable rates increased from 28% to 41% (Table AIII.1).  The
largest percentage reductions took place in beverages (from 8.5% to 4.9%); tobacco products (from54% to 1%);  and in furniture and non-metallic products (from 1.7% to duty free).
67. Canada's preferential rules of origin are designed to ensure that trade preferences are limited
to products originating in the corresponding free-trade areas.  Rules under the North
 American Free
Trade Agreement (NAFTA)  in several cases require key components to be produced in the NAFTA
region for NAFTA origin to be conferred (e.g. pictur e tubes for television receivers, or printed circuit
assemblies for telephones).  External s uppliers of textile inputs, and Canadian processors, are
confronted with strict "yarn forward" rules of or igin under the NAFTA, which require in most cases that
the finished products, the fabrics, and the yarns used  for weaving or knitting are formed in participating
countries in order for an article of cl othing to qualify for tariff preferences.
                                                     
48 For the details of the scheme see Canadian Customs and Revenue Agency online information.
Available at:  ftp://ftp.citt.gc.ca/menu/EmenuKCA.html.
49 WTO (1998), Table III.3.WT/TPR/S/78 Trade Policy Review
Page 20
68. As noted above, Canada has traditionally imported inputs for its clothing industry from MFN
sources.  Under the NAFTA "yarn forward" rule of  origin, however, exports to the United States of
clothing using non-NAFTA originating fabrics or yarns would not qualify as originating in Canada.
Therefore, the NAFTA allows for specified quota amounts of non-originating clothing and textiles
"the Tariff Preference Level" to be exported from Canada into the United States duty free.50  In certain
cases, notably woollen and cotton or man-made apparel, these tariff quotas are just about filled
suggesting that exports of such products to the United States are competitive within the quota but mayfind it difficult to compete against MFN U.S. suppliers.
51
(iii) Other charges and taxes affecting merchandise imports
69. A Goods and Services Tax (GST) applies to virtually all goods and services at a rate of 7%.
Some supplies, including residential rents and financial services, are exempt, others are zero rated
(e.g. certain basic groceries and agricultural goods).  Province-specific sales taxes apply in sixprovinces;  Alberta does not have a sales tax while in three provinces a harmonized sales tax of 15%
combines the provincial and federal taxes.  Exports are not covered by either the GST or any of the
provincial sales taxes.
70. Federal excise duties are imposed on certain products as production levies, complemented by
excise taxes imposed as sales levies.  In the case of tobacco and certain spirituous beverages, a duty
equal to the excise duty that would be levied on the goods under the Excise Act if they were
manufactured in Canada is levied at the time of importation, under the Customs Tariff.  Provinces also
impose taxes on fuel and tobacco products, with different tax rates applicable for each province.Excise taxation of alcoholic beverages and tobacco has been under review since the time of the last
Review of Canada.
52  In 1998, the following other products carried federal excise taxes or duties:
automotive and aviation fuels, jewellery, car  air conditioners and heavy automobiles.
(2) TARIFF QUOTAS IN THE AGRI-FOOD INDUSTRY
71. Tariff quotas constitute the main instrument of import protection in the agri-food industry.
Changes since Canada's last Review in the administration of these tariff quotas concern imports of
chicken, barley, and fluid milk.53  With regard to chicken and products, modifications to the allocation
of the tariff quota have reportedly been phased in, as provided for in Canada's Uruguay Roundcommitments.  The application of the barley tariff quota to imports from the United States has been
suspended, thus introducing a trade preference in favour of the United States;  and the Can$20 limit
on imports of milk for personal use has been removed.
72. In general, in accordance with Canada's Uruguay Round commitments, 21 tariff quotas
continue to restrict imports of mainly dairy products, eggs, turkeys, chicken and products thereof, andto a lesser extent beef, wheat and barley, and their products (Chart III.2).  The out-of-quota tariff rate
is generally prohibitive and may act as a de facto quantitative restriction.  This would be the case for
products with fill rates at, or close to the in-quota maximum volume, which is true for most of the
products subject to tariff quotas.
                                                     
50 Recent modifications to the administration of the Tariff Preference Level are described in the website
of the Canada Customs and Revenue Agency:  http://www.ccra-adrc.gc.ca/E/pub/cm/d11422ed/330be.doc.
51 For information on utilization levels see Department of Foreign Affairs and International Trade
online information.  Available at:  http://www.dfait-maeci.gc.ca/~eicb/textile/ntpl-exe-dec-e.htm.
52 Department of Finance online information.  Available at:  http://www.fin.gc.ca/earev/eaann5%2
De.html.
53 Pork imported from the European Union in excess of 2,970 metric tonnes has been subject to a 100%
tariff since 1999, in retaliation for the refusal of th e European Union to implement WTO dispute settlement
findings regarding its ban on Canadian exports of beef produced using growth hormones.Canada WT/TPR/S/78
Page 21
Butter
Cream
Ice cream
Other products of milk constituents
Condensed concentrated milk
Dairy food preparations
Cheese
Chicken and products
Liquid milk
Broiler hatching eggs and chicks
Yoghurt
Whey
Butter milk
Eggs and products
Turkey and products
Margarine
Wheat
Barley products
Barley 
Wheat products
Beef and vealChart III.2
Applied tariffsa on 21 groups of products subject to tariff quotas, 2000
 Fill ratesb, %
(Access volume tonnes )bOut-of-quota tariff, %
(In-quota tariff , %)
320 240 160 80 03 0 6 0 90 120
Source : WTO Secretariat calculations, based on data provided b y the authorities.Ad valorem  equivalents estimated by the WTO Secretariat in the case of specific or compound tariffs.
Access volume for the year 2000. Fill rates are 1999 imports as a share of WTO access volume in 1999.  
These fill rates ( 149% for chicken and 136% for broilers) reflect NAFTA commitments to allow imports of either a specified minimum 
share of domestic production in the previous year, or the WTO access volume, whichever is higher. Unlimited for non-commercial cross-border imports in retail packages.
Access volume in thousands of dozen.(4,345)   
(12)  
(70)
(20,412)
(39,844)
(332)(7, 949)
(3,198)(3,274)    
(394)    
(484)    
(908)
(21,370)
(5,588)
(7,558)
(76,409)e
e
(19,131)(226,883) 
(339,000)
(123,557)Fill r ate d (64,500)  (7.2)    
(9.0)   
(6.5)   
(6.5)   
(1.5)   
(6.5)   
(0.5)   
(3.6)   
(7.5)   
(1.2)   
(6.5)   
(1.1)   (5.3)   
(5.9)   
(3.9)   
(7.5)   
(1.0)   
(3.5)   
(0.8)   
(3.2)   
(0.0)   c
a
b
c
d
ecWT/TPR/S/78 Trade Policy Review
Page 22
73. Quotas are administered in a variety of methods including on the basis of the past
performance of the applicants (e.g. for most cheese, concentrated or condensed milk);  and
requirements of downstream users, who often depend on this access for competitively priced inputs
(e.g. cream, hatching eggs).54  The tariff quotas for margarine, wheat, wheat products, barley and
barley products are administered on a first-come, first-served basis.  The entire tariff quota for butter
is allocated to the Canadian Dairy Commission (see below).
74. Access at low in-quota rates of duty, scheduled  under the WTO Agreement on Agriculture, is
in many cases extremely limited (Chart III.2).  For certain dairy products, there is no market access
commitment at all:  for a number of tariffied products, other than the 21 WTO tariff quotas mentioned
above, Canada  specified in- and out-of-quota rates of duty but no quota volumes.  These products
notably include milk powder.55  The authorities have noted that, in practice, the products affected are
imported at the in-quota rate under supplementary import permits when temporary domestic shortagesoccur, or when the imported products are destined for re-export.
75. Five of Canada's 21 tariff quotas include reserved access in favour of four trading partners.  In
addition, the entire quota for fluid milk is reserved for personal cross border purchases (i.e. in practicefrom the United States).  Accordingly, importers must ensure that their supplies originate in the
countries with reserved access to the extent of the guaranteed share.  This effectively limits further the
available access for all other WTO Members.  In particular, 61% of the quota volume for butter is
reserved for New Zealand;  66% of the quota for ch eese is reserved for the European Union;  nearly
85% of the beef quota is reserved for Australia and New Zealand;  the entire quota for concentrated orcondensed milk or cream is reserved for Australia;  and the whole quota for powdered buttermilk is
reserved for New Zealand.
76. For some products, sizeable tariff preferences in both out-of-quota and in-quota treatment
would seem to be a determining factor in the sourcing of imports.  In the case of bovine meat,
for example, duty-free out-of-quota rates on imports from Caribbean countries, Chile, Mexico,
and the United States compare with an MFN tariff of 28%.  Mexico and the United States also enjoy
out-of-quota duty free treatment for imports of wheat, otherwise subject to a 50% duty; out-of-quota
imports of margarine enter duty free when originating in Chile or Mexico, while the MFN tariff isCan$0.8228 per kg. (equivalent to an ad valorem  rate of some 73%, according to WTO Secretariat
estimates).  Examples of products with in-quota tariff preferences include chicken, and turkey
products (MFN rates of 5-11% against duty free for U.S. and Chile on imports);  and milk, cream andbutter, and margarine (MFN rates ranging to 9%, duty free for U.S. and Chile on imports).
56
(3) ANTI-DUMPING , AND COUNTERVAILING ACTIONS
77. Although in most countries anti-dumping (AD), countervailing (CVD), and safeguard actions
cover only a small percentage of production and trade, they may strongly affect the producers of the
specific products concerned, both in supplying countries and in the country applying the measure, and
consumers in the importing country because of their effect on prices and choices of supply.  As atarget of many AD and CVD actions, and an econom y highly dependent on exports, Canada has been
a long-standing advocate in multilateral negotiations for tighter rules in order to limit unnecessary
restrictions to trade and market distortions that may result from the abuse of such measures.
                                                     
54 See WTO (1998) Table IV.5.
55 The HS items affected are:  powder milk and other milk, cream and buttermilk products – 04021010,
04022111, 04022121, 04022911, 04022921, 04039091;  certain malt extract, chocolate ice cream mix, andmixes – 18062021, 18069011, 19012011, 19012021, 19019031, 19019051, 19019053;  and other food
preparations – 21069031, 21069033, 21069093;  certain non-alcoholic beverages – 2202904;  and certain animal
food preparations – 23099031.
56 Canada's latest notifications concerning imports under tariff quotas are contained in WTO documents
G/AG/N/CAN/27, 29 April 1999 and G/AG/N/CAN/31, 12 January 2000.Canada WT/TPR/S/78
Page 23
78. Canada has maintained its position as one of the most active users of anti-dumping actions,
with 85 definitive duties in force at end June 2000 (Chart III.3)57, up from 73 in June 1998; this
suggests that industry has increasingly sought such measures as an avenue of protection against
import competition.  Nevertheless, AD and CVD actions  affect less than 0.5% of Canada's imports on
average, and about 2% of domestic shipments.58  Some 35 countries or customs territories are affected
by these measures, EU and U.S. suppliers are the subject of most actions.  Some 51 duties (58% of thetotal) cover steel products.
0246810121416
United States EU15 China Korea,  Rep.
ofChinese
TaipeiOther Asia Latin
AmericaCentral
European
Transition
CountriesOthers
Source:  WTO Secretariat. Chart III.3
Number of anti-dumping duties in force, by partner, June 2000
Steel
Other products
79. The Canada Customs and Revenue Agency ( CCRA – formerly Revenue Canada) conducts
investigations and determines whether goods imported into Canada are dumped or subsidized.59  The
Canadian International Trade Tribunal (CITT) conducts inquiries into whether dumped or subsidized
imports have caused, or are threatening to cause, material injury to a domestic industry. Procedural
amendments to both the Special Import Measures Act (SIMA), Canada's main AD and CVDlegislation, and  to the Canadian International Tr ade Tribunal Act (the CITT Act), were described in
the previous Review; they were enacted in April 2000.
60  Among other changes, these amendments
clarify the public interest provisions of SIMA, with a non-exclusive list of factors including:
significant damage to downstream users, problems of access to inputs due to imposition of the full
duty, significant impact on choice or availability of products to consumers, and elimination of
                                                     
57 WTO document G/ADP/N/65/CAN, 30 August 2000, contains Canada's report for the period
January-June 2000.
58 CITT (1997).
59 See Anti-dumping and Countervailing Directorate online information.  Available at:
http://www.ccra-adrc.gc.ca.
60 CITT (1999).WT/TPR/S/78 Trade Policy Review
Page 24
competition in the market-place.  The factors are designed to guide the CITT in conducting an inquiry
that would allow for duties to be reduced for reasons of public interest.61
80. Following the crisis in Asia, and the subsequent reduction in demand in that region, several
steel companies, particularly in Asia, were faced with a collapse of their traditional markets in 1998.
To avoid bankruptcy, they redirected their shipments to new markets;  these included Canada, where
imports surged.62  Reflecting this, some 22 of the 28 new AD and CVD actions initiated during the
July 1998 – June 2000 period concerned steel products (Table AIII.2).63  The six other cases involved
imports from the United States of refrigerators, dishwashers and dryers;  bingo paper;  and x-ray
contrast media;  an investigation covering cigarette tubes;  and another on waterproof footwear.
81. All but one of the recent investigations have resulted in a preliminary determination of
dumping.  According to the authorities, this re flects the high proportion, approximately 80%, of
complaints rejected prior to initiation (i.e. not "properly documented complaints").  Over the period
under review, preliminary findings resulted in prov isional duties ranging from 12% to 136% of the
customs value of the shipment, obliging exporters in some cases to increase their price by over 100%
or pay the duty in order to continue selling in the Canadian market.64  Moreover, products subject to
recent investigations accounted in most cases for 100% of exports of that product from the countriesconcerned.  Three price undertakings were in force as of February 2000, whereby exporters undertake
to export to Canada above a set (confidential) price.
82. The lengthy duration of actions under Canada's legislation – 16% of measures are in place for
ten years or more – is partly explained by numerous requests for review when an order is about to
expire.  Under the SIMA, all anti-dumping measures or undertakings are rescinded at the end of a
five-year period unless the Tribunal decides on its own initiative, or at the request of the CCRA or any
other interested party, to conduct a review.  Between January 1996 and June 1998, the Tribunal issuedan average of 1.5 review orders per month:  15  revi ew orders were continued;  33 others resulted in
the orders being rescinded.  During the January 1998 to June 2000 period, 17 review orders were
continued, and 32 were rescinded;  among the latt er, in 21 cases there was no likelihood of resumed
dumping;  in two cases no likelihood of injury, and in nine cases industry did not provide sufficient
data to justify review.
83. Six countervailing duty measures were in place as at September 2000.  Three of these are new
measures resulting from countervailing investigations initiated in October 1999 regarding steel
imports from India, Indonesia, and Thailand (Table AIII.3).
65
(4) QUANTITATIVE RESTRICTIONS AND CONTROLS
84. Quantitative restrictions and controls on trade are in most cases designed to ensure national
security, safeguard consumer health and morality, or to preserve domestic plant and animal life and
the environment.  These have been described in previous Trade Policy Reviews and are generally
notified to the WTO (Chapter III.5).  Quantitative restrictions and controls are implemented through a
                                                     
61 Canada has submitted a discussion paper on this issue to WTO Members (WTO document
G/ADP/AHG/W/76, 19 October 1999).
62 See for example Canada Customs and Revenue Agency (2000).
63 For information on all active cases see CCRA online information.  Available at:  http://www.ccra-
adrc.gc.ca/customs/business/sima/monthly-e.html.
64 In the Canadian system, exporters can avoid the payment of duties if they raise the relevant price to,
or above, the level of "normal value".
65 Canada's latest notification on countervailing duty measures is contained in WTO document
G/SCM/N/62/CAN, 29 August 2000.Canada WT/TPR/S/78
Page 25
system of licences.66  This section focuses on those restrictions maintained for economic purposes,
such as on:
- used or second-hand motor vehicles less than 15 years old, except if manufactured to meet
Canadian or U.S. safety standards;
- worn clothing;  and
- reprints of Canadian and British works copyrighted in Canada.
(i) Agri-food products
85. Quantitative restrictions on imports of agri-food products have been converted into tariff
quotas under the WTO Agreement on Agriculture (see above).  Other non-tariff restrictions include
imports (and interprovincial movement) of fresh fruit and vegetables without a pre-arranged buyer (a
"confirmation of sales"), and imports (and interprovincial movement) of bulk horticultural productsthat do not meet standardized quality, labelling, and packaging requirements.  Importers may obtain
waivers of these restrictions under special circumstances, such as shortages in Canada.
(ii) Textiles and clothing
86. As noted in its previous Review, Canada met the requirements of the WTO Agreement on
Textiles and Clothing (ATC) in its product integration programme for the first two stages (1 January1995 and 1 January 1998), including the integration of some products under import quotas with the
consequent removal of these quotas.  Canada, like other countries maintaining quotas, has generally
implemented the ATC by placing under GATT rules those textiles and clothing products for which no
quotas were in place, leaving the most sensitive products for the end of the implementation period.
The products selected for integration have been concentrated in products such as tops, yarns, and
fabrics (16.7%), and in made-up textile products (15.5%), with only small shares of clothing products
being liberalized (2.8%).  Canada has never applied the transitional safeguard mechanism provided bythe ATC.
87. Quotas for tailored collared shirts were eliminated in 1997 and these products were integrated
into GATT rules at Stage 2 in 1998.  These products accounted for nearly 20% of unrestricted imports
of clothing in 1999.  Quotas on rainwear, children's  shirts and blouses, women's and girls' ensembles
and knitted clothing, and babies' outerwear were removed in 1998 although these products were not
integrated.
88. The removal of quotas on tailored collared shirts has resulted in dynamic market advances by
China and India, and in important losses of market share for all other suppliers.  The elimination of
quotas for tailored collared shirts has therefore provided an insight as to how the Canadian import
market may evolve when other restraints are eliminated.  China is already Canada's largest supplier ofclothing products, and third overall supplier of textiles after the United States and Korea.  The
authorities expect China, and to an extent India, to supply most of Canada's MFN imports of clothing
once the system of restraints is fully dismantled.
89. In 1999, half way through the transition period of ten years for the ATC's implementation
some Can$2.2 billion of clothing imports entered under quota, accounting for 52% of total clothing
                                                     
66 These are handled by the Export and Import Bureau (DFAIT online information.  Available at:
http://www.dfait-maeci.gc.ca/"eicb/epd_ home.htm).  Cana da notified its import licensing procedures in WTO
document G/LIC/N/3/CAN/3, 11 October 1999.WT/TPR/S/78 Trade Policy Review
Page 26
imports, down from 61% in 1994.67  Between 1994 and 1999, the value of clothing imports under
quota increased by 27%, reflecting the under-utilization of quotas in 1994, and the growth of quota
size.  Exports of products whose quotas had been freed (e.g. tailored collared shirts) expanded by
128%, suggesting that quotas were substantially restraining imports (Chart III.4).  Imports from
preferential partners under the NAFTA have also increased considerably:  by 56% in the case of U.S.
suppliers, and by a factor of seven in the case of Mexico.
Chart III.4                                            
Imports of clothin g from selected su ppliers, 1994 and 1999
0.00.51.01.52.02.5Can$ billion
Under quotaaRestricted suppliesa 
freed of quotaOther non-restricted 
suppliersImports from the 
United States
a
Source :Supplies under bilateral agreements restricting exports of clothing to Canada.
Canadian authorities1994
1999
Imports from
Mexico(1994-99 change)(+27%)
(+128%)(+56%)
(+660%)(+30%)
90. In early 2000, Canada was restraining imports of textiles or clothing products from 41 trading
partners comprising 31 WTO Members and 10 non-members, down from 43 at the ATC's inception.68
These include six least developed countries.  Most exports from LDC countries to Canada in 1999
were clothing products, highlighting the current importance of this sector for these countries.69  These
LDCs have low overall quota utilization rates, except Bangladesh (82.6%).  For some products,
                                                     
67Other indicators regarding trade in textiles and cl othing are provided in a Communication from the
International Textiles and Clothing Bureau, WTO document WT/GC/W/283, 3 August 1999.
68 The countries are:  Bangladesh;  Brazil;  Bulgaria;  Cambodia;  China;  Cost Rica; the Czech
Republic;  the Dominican Republic;  Hong Kong, China;  Hungary;  India;  Indonesia;  Jamaica;  Laos;Lebanon;  Lesotho;  Macau;  Malaysia;  Mauritius;  Myanmar;  Nepal;  Oman; Pakistan; Democratic People'sRepublic of Korea;  the Philippines;  Poland;  Qatar;  Republic of Korea;  Romania;  Singapore;  Slovak
Republic;  South Africa;  Sri Lanka;  Swaziland;  Syria;  Taiwan;  Thailand;  Turkey;  United Arab Emirates;
Uruguay;  and Viet Nam.
69 See, for example, DFAIT online information.  Available at:  http://www.dfait-maeci.gc.ca/geo/
html_documents/76420-e.htm.Canada WT/TPR/S/78
Page 27
imports from Bangladesh, and to a lesser extent Cambodia and Laos, have utilization rates above
90%.
91. The quota system is likely to be most limiting on exporters with high quota utilization rates,
e.g.:  China (with a quota utilization rate of 90% in 1999);  Hong Kong, China (89%);  India (96%);
Viet Nam (93%);  and Thailand (75%).  Despite th e quotas, Canadian imports of clothing from the
ASEAN countries, expanded particularly rapidly in 1998, thereby helping these countries to emergefrom the 1997 financial crisis.  These quotas were under-utilized to such an extent that there was room
within the quotas for such rapid growth in addition to the growth of quotas themselves.  Clothing
(HS 61 and 62) is ASEAN's third largest export to Canada.
92. Under the ATC, Canada is committed to integrating a further 18% of 1990 import volumes
into WTO rules on 1 January 2002, and all remaining products by 31 December 2004.  The actual listof products is to be determined by the Minister for International Trade.  In a discussion paper
published in 1999 the authorities acknowledged the "strong dissatisfaction expressed by textile and
apparel exporting countries with the delayed removal of bilateral quantitative restrictions by the major
importing countries".
70  Aware of calls by developing countries "to undertake to implement positive
measures to manifest their commitment towards liberalizing trade" in the textile and apparel sectors,the Canadian authorities have asked the views of Canadians regarding a possible re-examination of
the Agreement's integration timetable.  Based on these consultations, however, the authorities have no
plans to accelerate the process of import liberalization and are opposed to any changes to the ATC
schedule.  They have noted that the Canadian textiles and clothing industry has undergone enormous
transformations in two decades, causing the loss of 250,000 jobs, and turning a domestically supplied
market into a market dominated by imports.
(5) S
TANDARDS AND TECHNICAL REGULATIONS
(i) Recent international regulatory activities
93. In September 1999, the Standards Council of Canada (SCC), the central governmental body
that oversees the National Standards System, accepted the TBT Agreement Code of Good Practice.71
According to the authorities, this ensures that standardizing bodies will continue to comply with the
Code of Good Practice in order to remain accredited by the Council.  Among other recentdevelopments, the SCC launched the "Canadian Standards Strategy", designed to ensure an active role
for Canada in the development and harmonization of standards internationally.
72
94. In 1999, Canada made 19 notifications of new technical regulations under Article 2.9 of the
WTO Agreement on Technical Barriers to Trade.73  Many of these notifications concerned motor
vehicle safety, as well as new chemical regulati ons.  In addition five notifications concerning
regulatory changes on telecommunications equipment and medical products have been made under
Article 5.6, in part following the entry into force of the mutual recognition agreements (MRAs) with
the European Union and Switzerland (see below).
95. The negotiation of MRAs is viewed as a tool to reduce or simplify conformity requirements.
MRA's are likely to facilitate bilateral trade with partner countries and do not, in Canada's view,unduly disadvantage third parties.  In particular, the authorities have noted that Canadian MRAs do
                                                     
70 DFAIT (1999).
71 WTO (1998) Chapter III(3)(v)(a).
72 SCC online information.  Available at:  http://www.scc.ca.
73 Article 2.9 contains notification requirements for new technical standards not in accordance with
international standards or established when international standards do no exist.WT/TPR/S/78 Trade Policy Review
Page 28
not contain a rule of origin requirement, and that Canada allows products from third countries to be
tested in Canada to partner-country technical requirements and vice-versa.  Canada's MRAs consist of
the 1998 Canada-European Union MRA on Conformity Assessment74;  a similar bilateral MRA on
Conformity Assessment with Switzerland75;  and an MRA with the other EFTA countries, not yet in
force.  In addition, Canada has endorsed the APEC Mutual Recognition Arrangement on
telecommunications76, as well as a similar Inter-American arrangement on telecommunications.77
(ii) Sanitary and phytosanitary measures
96. Canada has made 40 notifications to the WTO Committee on Sanitary and Phytosanitary
(SPS) Measures since its last Review, a sharp increase over previous years.  Most of these
notifications described amendments made to the Food and Drug Regulations establishing new
maximum residue levels (MRLs) for various chemicals contained in edible fruit and vegetables.  Thenew MRLs were introduced for health and safety reasons following scientific assessments;  as this
process resulted in the harmonization of domestic with U.S. requirements, it should further intensify
regulatory integration between Canada and its main trading partner.  This reflects the work of NAFTA
technical working groups to harmonize their regulato ry approaches.  Canada is working with the U.S.
and Mexico through the NAFTA Technical Working Group on Pesticides to harmonize pesticideregulatory approaches among the three countries.  Canada has also provided technical assistance to
developing countries in the area of SPS measures.
78
97. In June 1999, the Canadian Food Inspection Agency imposed a prohibition on the importation
from Belgium of pork and pork products, poultry and poultry products, and products that may contain
eggs and animal feed.  This provisional ban was then extended to beef and beef products, and dairy
products processed or packaged in Belgium, in respons e to reports of contamina tion with dioxins.  All of
these dioxin-related import restrictions had been lifted by January 2000.
98. The import controls implemented in Canada in relation to Transmittable Spongiform
Encephalopathy (TSE), including Bovine Spong iform Encephalopathy (BSE), remain in place.79
They include import prohibitions on live animals (bov ine, sheep, and goats), meat and meat products
from countries that have confirmed cases of TSE in native animals in the preceding seven years.
Importation from any other country requires a full risk assessment.  Currently, Canada allows importsof bovines from Australia, Mexico, New Zealand, and the United States;  sheep from Australia, New
Zealand, and the United States;  and goats from the United States.  Other animal products (e.g. semen,
hides and skins, dairy products) considered exem pt from TSE restrictions by the OIE (Office
International des Epizooties) can be imported if they meet Canada's other import requirements.
                                                     
74 For additional details, see WTO documents G/TBT/Notif.99.156, 9 April 1999; G/TBT/Notif.99.265,
4 June 1999;  and DFAIT online information.  Available at:  http://www.dfait-maeci.gc.ca/tna-nac/mra-eu-e.pdf.
75 See DFAIT online information.  Available at:  http://www.dfait-maeci.gc.ca/tna-nac/mra-swis-e.pdf.
76 See APEC TEL WG online information.  Available at:  http://www.apii.or.kr/telwg/mraTG/mra-
apec.html.
77 See CITEL online information.  Available at:  http://www.citel.oas.org.  A 1995 MRA with Korea
covers telecommunications equipment (DFAIT online info rmation.  Available at:  http://www.dfait.maeci.gc.ca/
tna-nac/shared/mra-ko-e.pdf).
78 WTO document G/SPS/GEN/143/Rev.1/Add.1, 16 June 2000.
79 WTO documents G/SPS/N/CAN/18, 24 and 39, 15 January 1997, 23 April 1997, and 16 April 1998
respectively.Canada WT/TPR/S/78
Page 29
(iii) Environmental regulations and trade
99. Environmental jurisdiction in Canada is shared between federal and provincial/territorial
levels of government.  Under the Canadian Environmental Protection Act (CEPA), as amended
in 1999, the importation or manufacture of any substance not listed on the Domestic Substance List is
subject to a notification and assessment procedure.80  Environmental measures notified by Canada to
the WTO are contained in the WTO Environmental Data Base.81  The  CEPA was amended in 1999,
among other things, giving increased power to the Federal Government to control the transboundary
movement of hazardous wastes and hazardous recycl able material, as well as new power to control
the import, export, and transit of non-hazardous wastes for final disposal.82
100. Among recent international developments, Canada has signed but not ratified the
December 1997 Kyoto Protocol to the Fr amework Convention on Climate Change.83  Under the
Kyoto Protocol, the Government of Canada is committed to reducing emissions to 6% below
1990 levels between 2008 and 2012, an ambitious objective given that greenhouse emissions have
continued to increase.  The 1999 Revised Emission Outlook forecasted that a 26% reductioncompared to business as usual would be required during the commitment period.  Implementing the
Kyoto Protocol may have effects on trade and invest ment as, according to one recent estimate, the
cost of implementing the Protocol could rang e from Can$8.4 billion to Can$17 billion annually
by 2010, corresponding to 0.66-2% of annual GDP.
84  Canada will not ratify the Protocol until the
National Implementation Strategy has been fully developed and the necessary international conditionsare in place.  Canada believes that to meet the broad objectives of the United Nations Framework
Convention on Climate Change, there must be broad participation in mitigation activities by all major
global economies, including key developing countries, and that the Protocol should allow countriesmaximum flexibility in determining their mitigation approaches.
101. One of Canada's recent TBT notifications relates to the introduction of an environmental
assessment process for foods, drugs, and cosmetics that are micro-organisms, cultured cells, or
products derived from micro-organisms, cultured cell s, "transgenic" animals or plants under the Food
and Drugs Act ("Transgenic" organisms are also referred to as genetically modified organisms(GMOs), or living modified organisms (LMOs)).
85  These regulations are expected to enter into force
in 2001.
102. In May 2000, Canada communicated information on a project to develop a voluntary labelling
standard for goods derived from biotechnology.86  The project involves the Canadian General
Standards Board developing, on behalf of the food industry and with the support of the Government, a
standard to provide consumers with consistent information, and further guidance to the food
industries.  According to this communication, guid elines are in place for the labelling of foods,
including those derived through biotechnology.  Thes e provisions require labelling of a product when
the product "differs significantly from its traditional counterpart in terms of nutritional content,
composition, intended use, or if the food carries a health or safety risk (e.g. allergenicity)".
                                                     
80 For New Substances Notification Regulations see Environment Canada online information.
Available at:  http://www.ec.gc.ca.
81 WTO document WT/CTE/W/118, 28 June 1999; and WT/CTE/W/143, 22 June 2000.
82 For details, see CEPA regulations [online].  Available at:  http://canada.justice.gc.ca/FTP/EN/
Regs/Chap/C/C-15.3/index.html;  and Environment Canada [online].  Available at:  http://www.ec.gc.ca/cepa.
83 The Protocol will enter into force once it has been ratified by 55 countries representing at least 55%
of developed countries' emissions.
84 Study by Charles River Associates ( Financial Times , 26 October 1999).  See also Chamber of
Commerce online information.  Available at:  http://www.chamber.ca.
85 WTO document G/TBT/Notif.99.330, 14 July 1999.
86 WTO document G/TBT/W/134, 23 May 2000.WT/TPR/S/78 Trade Policy Review
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(iv) Technical regulations at provincial level
103. Technical regulations and standards continue to differ among provinces.  These internal
barriers may reduce the competitiveness of Canadian industries, notably because of regulatory product
differentiation, and may affect international trade.87  Negotiations are still ongoing on changes to the
Agricultural and Food Goods Chapter of the Agreement on Internal Trade, to reconcile technical
barriers to trade in agricultural products and food.  Since 1995, Canada has made three notificationsunder Article 3.1 of the TBT Agreement, which contains a best-efforts clause with regard to
regulations established by local governments and non-governmental bodies.  No notifications have
been made since 1997.
(6) L
OCAL -CONTENT REQUIREMENTS
104. A number of local-content requirements are in place at federal or provincial level.  These
require locally produced goods and services to be used or purchased to favour domestic industries.  At
federal level, local-content rules in the "cultural" sectors have not changed markedly since the 1996
Review of Canada, except that restrictions on the amount of advertizing space that may be purchased
from foreign magazine publishers were partly liberalized (Chapter V(4)).  Value added and
production to sales requirements in motor vehicle production under the Auto Pact have also been thesubject of a WTO Panel, which concluded, inter alia , that this resulted in less favourable treatment
being provided to imports relative to domestic parts and materials and non-permanent equipment.
88
105. A number of local-content requirements are in place at provincial level.  Among those known
to the Secretariat are:
- Licensed wine manufacturers in Ontario may sell wine containing imported grapes only if the
wine contains a minimum of 25% of Ontario grapes, and if they collectively purchase a
minimum of 25,000 tonnes of Ontario grapes annually.  These requirements are to bereviewed at the end of 2000.
- Alberta's Forests Act requires the permission  of the Minister to export unprocessed wood
(except dry pulpwood and Christmas trees).  According to the authorities, logs and
woodchips are currently being exported from the Province.  The British Columbia Forestry
Act requires a ministerial permit to export out of the province unprocessed timber from landsunder provincial jurisdiction;  issuance is conditional on sufficient supplies for the provincial
processing industry.  Timber may also be exported if it cannot be economically harvested and
processed within the Province, or if export s will prevent waste or improve utilization.
- In New Brunswick, mining leases  are conditional on processing or further processing in the
Province.  In Newfoundland, petroleum and gas projects are approved if they result insufficient local employment and purchases of goods and services produced.  In Nova Scotia,
petroleum exploration rights are conditional on an attempt to use local labour and services.
These issues are currently under negotiation as part of the implementation of the AIT's
Energy Chapter.
                                                     
87 For details, see Internal Trade Secretariat online information.  Available at:  http://www.intrasec.
mb.ca.
88 WTO document WT/DS139/5, 2 March 2000.Canada WT/TPR/S/78
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(7) STATE TRADING , MONOPOLIES , AND OTHER EXCLUSIVITY RIGHTS AFFECTING TRADE
106. Canada's state-trading enterprises (STEs), as notified to the WTO Working Party on State
Trading Enterprises, are the Canadian Wheat Board (CWB), the Canadian Dairy Commission (CDC),
the Canadian Freshwater Fish Marketing Corporat ion, the twelve provincial and territorial liquor
boards, and the Ontario Bean Producers Marketing Board.89
(i) The Canadian Wheat Board (CWB)
107. The CWB is a state-trading enterprise with exclusive authority to export western Canadian
wheat, durum wheat, and barley.  It also controls domestic sales of milling wheat and malting barley.
The CWB exported 15.7 million tonnes of wheat and barley in the 1998-99 crop year, down from
23.7 million tonnes in 1997-98.  The decrease reflected the depressed world prices, record world
production, and the crisis in Asia, which led farmers to shift more land out of wheat and barleyproduction.  CWB's largest export markets in 1998/99 were the United States (2.3 million tonnes),
Japan (1.5), Indonesia (0.7) and Mexico (0.6);  total wheat and barley sales reached almost
Can$3.4 billion.
90
108. In 1998/99, 8% of total exports involved credit sales guaranteed by the Federal Government,
either to sovereign States under the Credit Grain Sales Programme, or under the Agri-food CreditFacility to private importers.  To maintain sale s, despite the Asian financial crisis and foreign
competition, the CWB offered Can$250 million in credit to Indonesia through the Credit Grain Sales
Programme, and Can$15 million to Korea, to enable them to continue buying Prairie-grown wheat.
The largest clients under these credit programmes in 1998/99 were Indonesia and Iran.
109. Borrowing by the CWB is currently about Can$7 billion (0.7% of GDP).  Federal government
guarantees allow the CWB to borrow money to finance its operations at "lower rates of interest than
any private sector company of comparable size and credit worthiness".
91  This results in significant
savings for Western Canadian farmers (amounting to over Can$60 million according to the CWB).
The Federal Government is entirely liable in case of default.
(ii) The Canadian Dairy Commission (CDC)
110. The CDC continues to have a de facto monopoly on the importation of butter under the tariff
quota system (Chapter III(2)).  Butter imports re present approximately 2% of domestic consumption.
The CDC is also active in export markets, although it does not have exclusive authority for the export
of any product.  In particular, the CDC negotiates  the prices of milk purchased by manufacturers of
dairy exports; this intervention has been the subject of a recent WTO panel (Chapter IV(1)(i)).
(iii) The twelve provincial and territorial liquor boards
111. No major change has been brought to the 1928 Importation of Intoxicating Liquors Act,
which provides each province and two territories with a monopoly on the introduction of all alcoholic
beverages into its territory both from abroad and from other provinces.  As a result, imports are
carried out by a (single) different public body in each province.  Distribution and warehousing
services for importers are generally reserved for the provincial "liquor boards".  Among the
exceptions, Alberta has privatized both warehousing and retail distribution;  in British Columbia and
                                                     
89 WTO document G/STR/N/3/CAN, 5 September 1997.
90 Canadian Wheat Board online information.  Available at:  http://www.cwb.ca.
91 Canadian Wheat Board online information.  Available at:  http://www.cwb.ca/aboutcwb/general/
general.htm.WT/TPR/S/78 Trade Policy Review
Page 32
Ontario, private retail operations are authorized for domestic wines but not for imported products;
and wines that are bottled in Quebec may be distributed through Quebec grocery stores.  Although
these regulations, under which provinces not only import but store, transport, distribute and sell
products, are likely to distort competition, the authorities consider them effective in promoting
responsible sale and consumption of alcoholic beverages.
IV. OTHER POLICIES AFFECTING TRADE IN GOODS
(1) EXPORT ASSISTANCE
112. Federal and provincial governments have developed an array of programmes and services
over the years to assist exporters, reflecting the growing importance of trade as a means of generating
income and employment.  These programmes range from export promotion – information and
intelligence, and counselling – to financial assistance, mainly in the form of export finance, equity,guarantees and insurance.  They are intended to boost exports of goods and services, which have in
fact increased dramatically and now account for 45% of GDP, up from 27% in 1986.
92  However,
there is no appropriate performance measure of the costs and benefits associated with this export
support.93  Since 1998, the export-related activities of two crown institutions - the Canadian Dairy
Commission and the Export Development Corporati on - have come under scrutiny by WTO panels.
Also, a legislative review of the Export Development Act was completed in 1999.
(i) Agricultural export subsidies
113. For the third consecutive year, Canada reported no export subsidies in the agri-food sector in
1998-99, in contrast to levels exceeding Can$600 million reported prior to the entry into force of the
WTO Agreement on Agriculture.  At the time, these export subsidies consisted mainly of support
provided under the Western Grain Transportation Act, now abolished, and of dairy export subsidies,
amounting to over Can$150 million at the beginning of the 1990s.94
114. A WTO panel recently examined the way Canada  eliminated these export subsidies in the
"supply managed" dairy sector.95  A prior system of producer levy funds, to cover the difference
between domestic and world market prices of dairy products, had been replaced in 1995 with a pricing
system whereby the Canadian Dairy Commission delivers permits to provincial marketing boards for
the sale of milk to dairy processors and exporters at prices below the levels otherwise available inCanada.  The WTO panel found that this pricing system constituted an export subsidy, and that dairy
exports provided through "classes 5(d) and (e)" were therefore subject to Canada's export subsidy
reduction commitments.  Implementation of the panel's findings will require reductions in exports of
subsidized dairy products (Table AIV.1).  According to the authorities, the previous pricing system
will continue to apply to dairy exports to the extent of Canada's WTO commitments (as specified inTable AIV.1).  In addition, under a new dairy export mechanism, individual farmers and processors
are now able to negotiate private contracts for the purchase of milk outside the supply management
system.  The involvement in these contracts of the CDC or provincial marketing boards is prohibited.
                                                     
92 These programmes, together with the institutions involved, have been described in previous
reviews.  Additional online information is available from DFAIT, at:  http://www.dfait-maeci. gc.ca;
the Trade Commissioner Service, at:  http://www.in foexport.gc.ca/programmes-e.asp; the Canadian
Commercial Corporation, at http://www.ccc.ca; Norths tar, at:  http://www.northstar.ca.;  and Province
of Quebec, at:  http://www.micst.gouv. qc.ca/index.html.
93 For a discussion of the effectiveness of export pr omotion activities (but not export finance), see the
1996 and 1999 Reports of the Auditor General of Canada [Online].  Available at:  http://www.oag-bvg.gc.ca.
94 See GATT (1995), Vol. I, p. 128.
95 WTO documents WT/DS103/R, 17 May 1999 and WT/DS103/AB/R, 13 October 1999.Canada WT/TPR/S/78
Page 33
(ii) Export financing
115. Most export financing in Canada is provided by the government-owned Export Development
Corporation (EDC).  As Canada's official export credit agency, it is authorized to borrow, to lend, and
to guarantee loans, to enter into export and foreign investment insurance contracts against risks, and to
issue guarantees regarding export transactions.  Its mandate also includes the power to incorporate
subsidiaries, make equity investments, provide domestic credit insurance, engage in leasing to usersabroad, as well as provide domestic financing and enter into joint ventures.  The EDC finances its
activities by borrowing under a government guarantee, whereby the State ultimately assumes costs if a
foreign debtor is unable to repay on time.  The EDC maintains two accounts, the "Corporate Account"
and the "Canada Account".
116. The EDC, because of its status, does not pay income or corporate taxes;  does not normally
pay dividends;  may benefit from reduced borrowing costs;  and benefits as a preferred creditor from
Paris Club debt relief provided ex gratia under "Paris Club Agreements".  The EDC is compensated
by the Government for administering the Canada Account;  compensation amounted to 20% of EDC's
total administrative expenses of Can$103 million in 1998.  The EDC is financially independent and
competes with the private sector.
(a) The Corporate Account
117.  EDC carries out the vast majority of its business under the Corporate Account.  In 1999, the
Corporate Account total loan exposure exceeded  Can$14 billion.  Of this, over Can$8 billion were
owed by sovereign States, mainly China, Peru, Venezuela, and Algeria.
96  In addition, the EDC
provided Can$27.6 billion in short-term insurance,  Can$5.9 billion in medi um-term insurance, and
Can$456 million  in loan guarantees.  The Federal Government may request, as part of Paris Club
debt forgiveness, certain non-performing debts to be written off the Corporate Account, and chargedinstead to the Budget.  From 1990 to 1999, the cost of non-performing debts under the Corporate
Account was approximately Can$745 million.
118. The WTO panel that examined Canada's support to the aircraft industry rejected Brazil's
claim that EDC's Corporate Account assistance constituted export subsidies as defined in the WTO
SCM Agreement.
(b) The Canada Account
119. The Canada Account has been used to support transactions that the Federal Government
deems to be in the "national interest" but that the EDC cannot support under the Corporate Account,
for example because of size or country risk.  The "national interest" involves considerations such as
the employment generated or sustained by the transaction;  the importance of the transaction to theexporter;  foreign policy considerations, including Canada's bilateral relationship with the country in
question;  and the importance of the market to Canada.
97  Canada Account transactions require an
authorization from the Minister for International Trade.
120. Under the Canada Account, contingent and direct liabilities are limited by law to
Can$13 billion. At end March 1998, the last year for which data are available, the outstanding balanceof Canada Account loans totalled Can$2.8 billion.  Over 40% of the outstanding balance on these
loans was concessional, in several cases interest-free, with repayment terms ranging to 55 years,
                                                     
96 Export Development Corporation (1999), pp. 34-35.
97 Summary of the Report to the Treasury Board on EDC's Canada Account Operations for the Fiscal
Year 1996-97 [Online].  Available at:  at http://www.edc.ca/about/summary.html.WT/TPR/S/78 Trade Policy Review
Page 34
frequently including a ten-year grace period.  Over half of this  concessional support was destined to
China, followed by Morocco and Turkey.  Large e xposures on the latter two remain because of the
concessional terms of transactions concluded before 1997.  Over the 1990-99 period, Canada as a
Member of the Paris Club has forgiven Can$225 million under the Canada Account.
121. A dispute between Canada and Brazil regarding alleged subsidies to exports of civilian
aircraft led a WTO panel to conclude that debt financing for the export of Canadian regional
aircraft under the "Canada Account" constituted export subsidies inconsistent with Articles 3.1(a)and 3.2 of the WTO Agreement on Subsidies and Countervailing Measures.
98  In particular, direct
export-contingent transfers of funds by a public body, at below market conditions, had conferred a
benefit to a private company, in this case Bombardier.
122. Although EDC will still consider and finance regional aircraft export sales under the Canada
Account, the authorities have stated that all Canada Account transactions in all sectors will comply
with the OECD Arrangement on Guidelines for Of ficially Supported Export Credits (the OECD
Arrangement).99  In addition, no disbursements would be made to the regional aircraft industry by
Technology Partnerships Canada (section (3)(ii) below).
123. According to a report prepared by private consultants for the legislative review of the Export
Development Act, the Gowlings Report, Canadian exporters view the EDC as an "important
alternative to Canadian banks which tend to be much more selective in their risk appetite".100  I n
December 1999, the Government tabled a report in Parliament in response to the recommendations
resulting from this review.101  One of the recommendations contained in the Report was to increase
EDC's capacity for foreign project equity investments.  This reflects two recent trends in international
financing:  (i) the shift away from sovereign debt towards project financing;  and (ii) the growth in
equity as a share of project financing, particularly in emerging markets where suppliers must invest in
equity to win supply contracts.  The Gowlings Report recommended that all other trade-related
investments, as well as leasing powers, be exercised through taxable subsidiaries that would operate
on commercial principles.102  The Report also recommended the further commercialization of EDC's
activities, considering that "if EDC is able to stand on its feet then it should, provided there is nocompelling public policy reason for continued government ownership and control".
103  T h e
Government subsequently endorsed the general direction of the Gowlings Report, while also
clarifying that EDC had a public mandate to promote and reflect Canadian values abroad.
(2) EXPORT CONTROLS , RESTRICTIONS , AND CHARGES
124. A number of export controls are in place under the Export and Import Permits Act,
administered by the Export and Import Control Bureau.  These controls may be implemented for
foreign and security policy purposes, and to fulfil international commitments.  Controls may be placed
on exports to particular countries listed on the Area Control List (currently Angola, Burma, and
Yugoslavia), or on strategically controlled goods and technologies listed on Canada’s Export Control
List.104  Permits are required for these exports, as well as to re-export goods originating in the
United States, in order to help ensure the enforcement of U.S. restrictions on exports of controlled
goods as well as U.S. embargoes to certain countries.
                                                     
98 WTO document WT/DS70/R, 14 April 1999.
99 WTO document WT/DS70/8, 26 November 1999.
100 Gowling, Strathy & Henderson (1999), p. 47.
101 DFAIT (2000c).
102 Gowling, Strathy & Henderson (1999).
103 Gowling, Strathy & Henderson (1999), p. 130.
104 DFAIT online information.  Available at:  http://www.dfait-maeci.gc.ca/~eicb/export/intro_e.
htm#intro_ea.Canada WT/TPR/S/78
Page 35
125. Also under the Act, the Export and Import Controls Bureau restricts textiles and clothing
exports to the United States to implement an export tariff quota ("tariff preference level",
Chapter III(1)(ii)).  Further, peanut butter, sugar- containing products, certain sugars, and syrups and
molasses are licensed for export to the United States under  tariff quotas  maintained by the latter.
126. Under a five-year agreement in place since 1 April 1996, exports of softwood lumber to the
United States from Alberta, British Columbia, Quebec, and Ontario are restricted by  a tariff quota.The agreement provides for variable export fees imposed on shipments above certain thresholds.  A
dispute regarding stumpage charges in British Columbia was settled when Canada agreed to impose
additional export fees on some B.C. lumber.  In addition, the tariff re-classification of "pre-drilled and
notched studs and rougher headed lumber" by the U.S. Customs Service is currently under arbitration.
The authorities maintain the view that this agreement does not infringe the WTO Agreement on
Safeguards, nor is it covered by any notification requirements under the WTO.
105  Canada's
implementation of the Agreement has also been challenged under the investor-state provisions of the
NAFTA (Chapter II(3)(i)).
127. Other products whose exportation requires a permit include the following:  (i)  pancreas
glands of cattle and calves (all destinations), to ensure adequate supply in Canada;  (ii) human serumalbumin (all destinations), to ensure domestic suppl y;  (iii) logs and pulpwood of all species of wood
(all destinations) to ensure that there is an adequate supply and distribution in Canada.
106  In addition,
the Province of British Columbia maintains its own export controls on logs and chips in order to
ensure sufficient supply for domestic industries;  (iv) blocks, bolts, blanks, boards, and any other
material or product of red cedar that is suitable for use in the manufacture of shakes or shingles (all
destinations).  The measure was introduced following a U.S. CVD case covering shakes and shingles
in the late 1980s, but no longer has any rationale;  and (v) unprocessed roe herring, to ensure access toa reasonable supply for processors.
128. Exports of cigarettes and other tobacco products manufactured in Canada are, with some
exemptions, subject to a tax (4 cents per cigarette) under the Excise Tax Act.  This tax is part of a
national programme to reduce tobacco contraband.
(3) F
INANCIAL ASSISTANCE TO BUSINESS
129. National accounts data for 1998, the latest year available, indicate an increase in current and
capital assistance to businesses that year (Chart IV.1).  At Can$11.2 billion, total financial assistance
in 1998 amounted to 1.3% of GDP at factor cost;  mo st of that assistance went to Quebec (40% of the
total) and Ontario (24%).107  An increase in assistance observed in 1998 took place mainly in Quebec
(+34%), followed by Alberta (+25%), and Saskatchewan (+21%);  the authorities noted that theincrease in provincial assistance that year reflected one-time payments to compensate for losses
resulting from the 1997 winter ice-storm, rather than a change in provincial government policy
regarding business subsidies.  In 1999 and 2000, further increases may have resulted from recently
introduced agri-food income support programmes.  Some 40% of total financial transfers to the
economy go to the agri-food sector.
                                                     
105Article 11(1)(b) of the WTO Agreement on Safeguards stipulates that Members "shall not seek, take
or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on
the export or import side.  These include actions taken by a single Member as well as actions under agreements,
arrangements and understandings entered into by two or more Members".
106 See also Chapter III(6) on local content requirement.
107 Statistics Canada (1999), p. 239.WT/TPR/S/78 Trade Policy Review
Page 36
02,0004,0006,0008,00010,00012,00014,00016,000
1991 92 93 94 95 96 97 19980.00.51.01.52.02.5Can$ millionChart IV.1                                            
Current and capital  assistance to business, 1991-98
Provinces
Federal GovernmentLocal authorities
a % 
Share of GDP
(right  axis )
Estimate.
Subsidies and capital transfers, national accounts definition (excluding tax breaks).  Federal transfers include 
payments to government-owned business, such as local transit an d utilities, as well as social payments in kind, such as 
payments to the Canada Mortgage and Housing Corporatio n; changes in 1996 and 1997 ref lect in part statistical a
Note:
Source: WTO Secretariat calculations, based on Statistics Canada (1998), Provincial Economic Accounts ;  and data 
provided by Statistics Canada.
(i) Assistance to agriculture and food processing
130. The authorities pointed out in the context of this Review that Canadian farm incomes have
been hurt by depressed farm prices following several years of high world production, by reduced
demand due to the crisis in Asia, and "by export subsidies and domestic support extended by some ofour major trading partners".  Increased budgetary payments to farmers in Canada have compounded
the spiral of increased government outlays and fa lling agricultural prices.  According to the OECD
Secretariat, total farm support in OECD members reached an estimated US$361 billion in 1999, up by
US$30 billion since 1997.
108  Canada's share in that total is minor in absolute terms, support relative
to receipts averaging 20%, compared with an OECD average of 40% (Chart IV.2).  In this context,
Canada's Prime Minister has stressed "the need to continue pushing aggressively for an end to price-
distorting agricultural subsidies through the World Trade Organization negotiations".109
                                                     
108 OECD (2000).
109 Agriculture and Agri-food Canada online information.  Available at: http://www.agr.ca/cb/news/
n000224be.html.Canada WT/TPR/S/78
Page 37
0326496128160
Australia Canada United States EUTSE a
US$ billionChart IV.2
Estimates of support to agriculture by the largest OECD agricultural exporters
Source : OECD (2000 ). PSE  b
%
50
40
30
20
10
01998
19991986-88
1997
PSE
a    Total support estimate (producer, general services, and consumer support) expressed at 1998 prices using U.S. GDP deflator .
b    Producer support estimate as a share of gross farm receipts.TSE
131. Following a decade of progressive reform away from price support, Canada's agricultural
assistance now consists mainly of income risk management programmes, such as the Net Income
Stabilization Account (NISA), crop insurance, a new disaster-relief programme, and province-basedsafety nets.  According to the authorities, total expenditure under these programmes is approximately
Can$2 billion per year for the 1998 to 2002 tax years.  The recent increase in overall government
expenditure in support of the whole agri-food sector, was about Can$5 billion in both 1999-2000 and
2000-03 (Chart IV.3).  This increase follows payments in 1998 and 1999 under the Agricultural
Income Disaster Assistance (AIDA).
132. Funded 60% by the Federal Government and 40%  by provincial governments, AIDA was a
two-year programme (1998-99 and 1999-00) designed to provide income support to farmers when, for
reasons beyond their control, there was an extreme reduction in their farm income.  Federal
commitments under the AIDA totalled over Can$1 billion.  The provinces provided additional income
support slightly exceeding Can$700 million during those years.  According to the authorities, bothAIDA and CFIP meet the "green box" criteria of  Annex 2.7 of the WTO Agreement on Agriculture.
133. An additional one-time decoupled income support payment of Can$240 million was provided
in 2000-01 to producers in Saskatchewan and Manitoba.  Canada has notified this programme as
"green" or "amber" to the WTO Committee on Agriculture.
110  The Alberta government has allocated
Can$ 145 million in new funding for Alberta farmers in fiscal year 2000/01.  Nova Scotia announced
a new relief package in November 1998, providing grants to assist farmers in paying loans taken out
to offset weather-related losses.  Ontario's 1998 Can$40 million Whole Farm Relief Programme aims
                                                     
110 WTO document G/AG/N/CAN/36, 14 July 2000.WT/TPR/S/78 Trade Policy Review
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to provide income relief for farmers sufferin g from low commodity prices and weather-related
disasters.  In Quebec, the Farm Income Stabilizat ion Insurance Programme stabilizes the farm income
of agricultural producers.  Payments are triggered when the average selling price is lower than the
price corresponding to a given income level.  Total government expenditures under this programme
for 1998/99 amounted to nearly Can$333 million.
01,0002,0003,0004,0005,0006,0007,000
1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/010510152025303540
Expenditure As a % of agricultural GDP As a % of agri-food GDPCan$ million
a
Source: Estimate.
Agriculture and Agri-Food Canada (2000), "Farm Inco me, Financial Conditions and Government Assistance", 
Data Book , Ottawa (http://www.agr.ca); and WTO estimates.Chart IV.3
Government ex penditure in su pport of the a gri-food sector , 1994-2001
Per cent 
a
134. The supply-managed sectors (dairy, poultry, and egg production), which account for one fifth,
in value terms, of Canadian agri-food production, continue to rely mostly on price support.  In 1996,the last year for which data were notified to the WTO, nearly Can$500 million was spent in
supporting prices of dairy products alone.  In 1999, the OECD's Producer Support Estimate for milk
reached 58% (compared with an OECD average of 57%), suggesting that over half of milk farm
income is provided by budgetary transfers and price support.  This support relies on prohibitive out-
of-quota tariffs, production quotas and, in certain cases, export support.  The federal dairy subsidy isreportedly on track for elimination in 2002.  In contrast, target prices for industrial milk were
increased in February 1999, and support prices were raised for butter and skim milk powder, thus
moving towards additional price support.
135. The Canadian Egg Marketing Agency  maintains a producer-levy system for processed egg
products, under which the domestic Canadian price for shell eggs is maintained at a level substantially
above the world price.  Under this Industrial Pr oducts Programme, the CEMA assesses a levy on all
eggs sold.  Processors pay one price (lower than the producer price) for eggs, whether destined for theCanada WT/TPR/S/78
Page 39
domestic market or for export.  The levy is used to finance the difference in prices, and thus provides
assistance to Canadian producers of egg products.
136. In the WTO Committee on Agriculture, Canada's last notification of current total Aggregate
Measurement of Support (AMS) was for 1997111;  Canada has notified some 21 new or modified
programmes of assistance that are deemed not to have trade-distorting effects.  For 1997, the total
AMS of Can$522 million was well below its WTO commitment level of Can$5 billion for the periodin question.
112  In addition, Canada reported Can$954 million in de minimis  support and
approximately Can$1.2 billion in green box measures for that year.113
(ii) Assistance in other areas
137. Approximately 60% of government financial transfers to the private sector support secondary
and tertiary activities.114  Information on certain federal subsidy programmes is provided in Canada's
notifications to the WTO Committee on Subsidies and Countervailing Measures (SCM).  According
to the latest notification, expenditure under notifiable industrial subsidy programmes totalled about
Can$850 million in 1997/98.  The main instruments of support include grants, as well as direct
investments as in the case of the Technology Partnerships Canada Programme.115  The latter was
found by a WTO panel to provide subsidies to the Canadian regional aircraft industry that werecontingent upon export performance and has since been amended.
116  According to the authorities, the
amendments will ensure that when a financial contribution is made under the Programme, export
performance is not a consideration or a condition of the contribution.
138. No information has been provided to WTO Members under the SCM Agreement regarding
non-agri-food provincial and other subfederal measures that meet the definition of a subsidy and are
specific, although descriptions of various provincial programmes have been provided in response to
questions by Members.117  According to the authorities, certain provinces have indicated that they
provide no subsidies requiring notification under the SCM Agreement.  However, the relative absence
of data on subfederal support preclude an overall assessment of assistance and of its effect on resource
allocation and trade.  Available information suggests that assistance programmes are being
progressively restructured to focus more on technological innovation rather than commercialization or
support to sunset industries, although there are exceptions.
139. For example, the Province of British Columbia granted loan guarantees in 1997-98 to the pulp
mill of Skeena Cellulose Inc. at Prince Rupert, and continues to guarantee Skeena's operating loans;
the province has also approved funding for 70% of a Can$170 million capital expenditure on
upgrading the pulp mill.  As a result, British Columbia has now become the majority shareholder in
Skeena Cellulose Inc.  In addition, the firm benefited from a reduction in stumpage rates in the
                                                     
111 WTO document G/AG/N/CAN/37, 15 September 2000.
112 WTO document G/AG/N/CAN/35, 21 March 2000. The total AMS is an indicator of outlays on
trade-distorting subsidies.
113 De minimis  in terms of the AMS includes product-specific support that does not exceed 5% of the
value of production of the product concerned and non-product-specific support that does not exceed 5% of thevalue of total agricultural production.
114 Excluding processed food that is included in Agriculture and Agri-Food Canada support
programmes.
115 WTO document G/SCM/N/48/CAN, 9 May 2000.
116 WTO documents WT/DS70/R, 14 April 1999 and WT/DS70/AB/R, 2 August 1999.  See also
Industry Canada online information.  Available at:  http://stategis.ic.gc.ca/SSG/tp00212e.html.
117 WTO documents G/SCM/Q2/CAN/14, 5 November 1999, and G/SCM/Q2/CAN/15, 8 November
1999.WT/TPR/S/78 Trade Policy Review
Page 40
province.  British Columbia also supports R&D through various programmes.118  The Buy BC
Programme encourages purchases of BC food products.119  In Prince Edward Island, the PEI
Equity Investor's Incentive Programme offers non-repayable cash grants to encourage investment in
PEI-based businesses in eligible projects.120  The Export Development Programme provides
marketing assistance and capital contributions of up to Can$40,000 to eligible industries that clearly
contribute to import replacement.121
140. Investissement Québec provides Quebec companies with interest-bearing or interest-free
loans, and loan guarantees;  these amounted to nearly Can$70 million in 1997-98.122  In addition, the
Quebec Government provides an attractive package of incentives for investment in research-intensive
industries;  almost Can$500 million is allocated annually to support R&D spending, and to provide
accelerated depreciation and other financial assistance to high-technology companies.  As a result ofthe combined federal and provincial tax credits, a small company actually pays only 27% of its R&D
wage bill, the rest being financed by the Government.  In addition, several programmes  provide
incentives for local investment:
- The Small and Medium Size Business Guarantee (Garantie Québec) is applicable to loans
granted by a financial institution for an expansion or a development project, includingworking capital.  The guarantee is available for specific activities, notably exports or
innovation (R&D, design and marketing).  Reimbursement is guaranteed up to a certain
percentage of net losses, for example 80% for export projects, 60% for start-up or
expansion.
123
- The FAIRE Programme, with a budget of Can$500 million for five years from 1999, provides
refundable or non-refundable contributions.  Projects must involve, inter alia,  an investment
of no less than Can$10 million and create at least 100 jobs over a period of 36 months.
- The Quebec Business Investment Company (Société de placements dans l'entreprise
québécoise) encourages investment in the common shares of Quebec-based small and
medium-sized firms in specified sectors or activities, such as exporting or cultural production;
investors benefit from tax deductions equal to 150% of their investment, and up to 30% of
their net annual income.124
(4) COMPETITION POLICY
(i) Legislation and international cooperation
141. The Competition Bureau's mandate on competition matters has contributed to the competitive
prices, product choice, and quality service that characterize the Canadian economy.  The
                                                     
118 For more details, Science Council of British Columbia, and British Columbia's Information, Science
and Technology Agency online information.  Available at:  http://www.scbc.org and http://www.scitech.gov.bc.ca.
119 British Columbia Ministry of Agriculture Food and Fisheries online information.  Available at:
http://www.agf.gov.bc.ca/foodind/buybc/buybcfnd.htm.
120 Prince Edward Island Business Development online information.  Available at:  http:/www.
peibusinessdevelopment.com/programs/equity.php3.
121 Prince Edward Island Business Development online information.  Available at:  http://www.
peibusinessdevelopment.com/programs/support.php3.
122 WTO document G/SCM/Q2/CAN/14, 5 November 1999.
123 Investissement Québec online information.   Available at:  http//invest-quebec.com.
124 For more details, see Invest Québec online information.  Available at:  http://invest-quebec.com/p-
financiers/societe-speq-htm.Canada WT/TPR/S/78
Page 41
Commissioner of Competition is head of the Bureau, which administers and enforces the provisions of
the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the
Precious Metals Marking Act.125  To achieve conformity with the legislation, the Bureau has adopted
an integrated approach, referred to as the Conformity Continuum, which includes a variety of
education, compliance, and enforcement instruments.126  In cases of alleged violation of the
Competition Act's criminal provisions, the Commissioner may refer the matter to the AttorneyGeneral of Canada.  For non-criminal matters, the Commissioner may file an application with the
Competition Tribunal, a specialized quasi-judicial body established under the Competition Tribunal
Act, which hears and decides all applications made under relevant parts of the Competition Act.
127
142. Legislation amending the Competition Act and the Competition Tribunal Act (Bill C-20) was
passed in March 1999, and has since entered into force.  The amendments allow the Bureau to dealmore easily with emerging business trends and enforcement requirements, in Canada and abroad.  The
amendments add a new criminal provision dealing specifically with deceptive telemarketing practices,
and impose strict disclosure requirements on telemarketers.  The provisions on merger pre-notification
have been deleted from the Competition Act and included in the Notifiable Transaction Regulations to
facilitate future amendments to these regulations in a changing global environment.
128  N e w
provisions to the Act permit the Commissioner to appl y for wiretaps in respect of enquiries involving
price-fixing and market-sharing conspiracies, as well as deceptive telemarketing.
143. As noted in its previous Reviews, Canada actively cooperates with other countries on
competition-related issues, notably under the 1995 Canada-U.S. Agreement Regarding the
Application of Their Competition and Deceptive Marketing Practices Laws.  A similar cooperation
agreement was signed in June 1999 with the European Union, and provides a framework for
information exchange and closer cooperation and coordination in the enforcement of competitionlaws. Other related agreements include the Canada-U.S. Mutual Legal Assistance Treaty and the
Extradition Treaty.  Canada also engages in notifications under the 1995 OECD Recommendation
Concerning Cooperation Between Member Coun tries on Anticompetitive Practices Affecting
International Trade.
(ii) Enforcement and other activities
144. As of April 1999, the Competition Bureau had 48 enquiries in progress.  In addition, the
Bureau has engaged in enforcement activity in 11 cases with an international dimension, reflecting the
globalization of competition policy enforcement concomitant with the growing integration of the
world economy.  In one case, fines totalling nearly Can$80 million were imposed on several
companies for multiple conspiracies to fix prices and allocate market shares for ten vitamin and foodadditive products sold in Canada.  One firm was fined Can$48 million for its role in the conspiracy,
the largest fine levied in Canadian criminal law history.  In addition, a senior officer of a company
was sentenced to nine months imprisonment for his part in fixing prices and allocating markets for
choline chloride.  Recent domestic cases have involved acquisitions, price fixing, and advertising.
                                                     
125 Competition Bureau online information.  Availa ble at:  http://strategis .ic.gc.ca/SS G/ct01254e.html.
The Competition Act is available at: http://canada.justice.gc.ca/STABLE/EN/Laws/Chap/C/C-34.html.
126 More information on the Conformity Continuum may be found in the Bureau's online information.
127 Competition Tribunal online information.  Available at:  http://www.ct-tc.gc.ca.  The Competition
Tribunal Act is available at:  http://canada.justice.gc.ca.
128 More information is available from the Competition Bureau's online information.  Available at:
http://strategis.ic.gc.ca/SSG / ct01254e.html.  The OECD also provid es a review of competition law policy
developments in member countries (http://www.oecd.org/daf/clp/Annual_reports/98-99.htm).WT/TPR/S/78 Trade Policy Review
Page 42
145. In response to recent deregulation and structural adjustment in key sectors, the Competition
Bureau has conducted a number of industry-specific reviews and issued opinions and guidelines to
clarify the requirements of the Competition Act in these sectors.  In December 1998, the Bureau
announced that the mergers of the Canadian Impe rial Bank of Commerce and the Toronto-Dominion
Bank, on the one hand, and of the Royal Bank of Canada and the Bank of Montreal, on the other,
were likely to lead to a substantial lessening of competition that would cause higher prices and lowerlevels of service and choice for several key banking services in Canada.  In January 2000, following a
number of changes to the proposed merger, which e liminated initial competitive concerns, the Bureau
approved the proposed merger between the Toronto-Dominion Bank and Canada Trust because it
would not substantially lessen or prevent competition by raising prices, limiting choice or decreasing
service (see also Chapter V(1)).
146. The Bureau announced in December 1999 that it would not oppose the proposed acquisition
of Canadian Airlines Cor poration by Air Canada, despite the fact that this would result in a dominant
firm in domestic markets.  Instead it recommended a number of measures to lower the barriers to
entry to the domestic airline market, as well as othe r measures to increase foreign competition in the
domestic market.  Subsequently, legislation was introduced to, among other things, protect consumerinterests (see Chapter V(2)).
(5) G
OVERNMENT PROCUREMENT
147. The Federal Government estimates that it procures Can$10 billion annually in goods and
services.  There is no consolidated data on procurement at all levels of government.  Public
expenditure on goods, services, and construction, which can be used as an estimator of total public
purchases, amounted to some Can$61 billion in  1996, or 7% of GDP at factor cost.129  Chart IV.4,
which is based on Canada's previous Review because no later information was available, shows thatpublic expenditure at subfederal levels accounts for over three quarters of total expenditure.
148. As a Member of the WTO Agreement on Government Procurement (GPA), Canada shares the
goals of transparency, accountability and international competition in public procurement world-wide,
in order to optimize resource allocation and minimize costs.  Domestically, transparency in public
purchasing is enhanced by MERX, an Internet-based tendering system in place since 1997.
130
149. Foreign suppliers based in countries that are signatories to the GPA may bid on federal
contracts covered by the GPA's provisions.  Canada's commitments under the NAFTA are similar to
those under the GPA.  GPA provisions concerning federal entities exclude certain important
purchases, such as those of special industry machinery and computer equipment by Transport Canada,
and purchases, by all departments, of ships (including shipbuilding and repair services), urbantransport equipment, including urban rail, and of communications equipment.  In practice, and as in
many other industrialized countries, public procurement still consists mostly of domestic goods and
services purchased from domestic suppliers.
131
                                                     
129 In the absence of available procurement data, national accounts public expenditure on goods,
services, and construction (excluding labour income) is used as an indicator for public procurement.  The
authorities have noted, in addition, that procurement data would be collected on the basis of contract values at
the time contracts are let, while public expend iture data trace the funds when they are spent.
130 MERX, Canada's Electronic Tendering System is available at:  http://www.merx.cebra.com.
131See for example WTO document GPA/21/Add.1, 16 October 1998.Canada WT/TPR/S/78
Page 43
Chart IV.4
Public expenditure on goods, services, and construction, 1996
MASH sectora  27.5%
of which:
   Ontario  10.2
   Quebec  8.7
   Other  8.6Provincial Government  48.8%
of which:
   Ontario  16.3
   Quebec  9.8   Other  22.7Federal Government
23.7%
Total: Can$61.1 billion
a
Source:Municipalities, academic institutions, social services and health entities.
WTO Secretariat, based on Statistics Canada (1997), Provincial Economic Accounts ;  and data 
provided by Statistics Canada.
150. A number of GPA participants consider that Canada has yet to fulfill its commitments under
the GPA in providing the definitive list of subfederal entities subject to the Agreement's disciplines.132
As a result, several GPA signatories have excluded Canadian companies from market-access
commitments at both the government-enterprise and subfederal level.  Canada's position remains that
the provinces, having reviewed the offers from other signatories, particularly that of the United States,
are not prepared to commit coverage of their enti ties until such Members are prepared to improve
market access in sectors of priority interest to Canadian suppliers.
151. The Agreement on Internal Trade (AIT) attempts to ensure equal access to procurement for
Canadian suppliers.  It covers procurement by federal and provincial governments;  and procurement
by municipalities, publicly funded academic institutions, social services agencies and hospitals
(MASH entities) except in British Columbia and the Yukon.  It applies to "Canadian suppliers", i.e.
suppliers having an establishment in Canada where activities are conducted on a permanent basis.
This definition does not exclude foreign-owned companies (however, see below).  The AIT excludesmost crown corporations (e.g. public utilities) and procurement for many services (e.g. certain
professional services, most financial providers, health and social services, and advertising services).
133
152. The Canadian International Trade Tribunal (CITT) receives, enquires into, and decides on bid
challenges concerning federal government procurement that is covered by any of the three agreements
entered into by Canada:  the GPA, the NAFTA, and the AIT.  Foreign suppliers may thereforechallenge federal procurement that they believe has not been tendered in accordance with these
                                                     
132Canada's commitments under the GPA are contained in WTO document GPA/W/35/Rev.1,
8 July 1999.
133 AIT Secretariat online information.  Available at:  http://www.intrasec.mb.ca/pdf/consol_e1.pdf.WT/TPR/S/78 Trade Policy Review
Page 44
agreements.134  Since 1998, the CITT has dealt with over 50 cases annually.  Approximately 4% of
cases were initiated by foreign companies, mostly under the NAFTA.  Canadian suppliers may also
challenge certain subfederal public purchases under the AIT;  these challenges are coordinated
through the AIT Secretariat.
153. Many buy-local restrictions remain in force, when the agreements described above do not
apply.  In turn, the exclusion of  non-local (and foreign) suppliers results in the fragmentation of themarket and a loss of efficiency in government procurement.  For example, in a recent procurement for
reinforcing steel bars, the Saskatchewan Property Management Corporation reserved the right to give
preference to tenders received from Saskatchewan or other western provinces.
135
154. Canada last notified annual statistics under Article XIX:5 of the WTO Agreement on
Government Procurement in October 1998.136
(6) TRADE -RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS)
155. Since 1998, Canada has participated in the WTO review of legislation on patents, layout-
designs (topographies) of integrated circuits, protection of undisclosed information and control of
anti-competitive practices in contractual licences.137  Canada also participated in the review of
legislation on enforcement138, and notified the WTO of its contact point for TRIPS, including for
technical cooperation.139
156. Canada's legislation on patents has been challenged twice in the WTO since 1998.  The first
case related to the two exceptions to the otherwise exclusive rights of the patentee to make, construct,
use or sell a patented invention.  The first such exception allows producers of generic pharmaceuticals
to work a patented product for the purpose of completing the regulatory approval process applicable
to that product (Early Working Provisions).  The second exception allows manufacturers to
manufacture and stockpile patented drugs for the six months before the patent expiry.140  The
European Union claimed that such provisions were  not compatible with th e TRIPS Agreement.  The
WTO panel found in March 2000 that the first exception is consistent, and the second inconsistent
with the TRIPS Agreement.141  According to the authorities, Canada implemented the panel's decision
in October 2000.
157. This WTO ruling is not expected to impact measurably upon Canadian consumers' access to
generic drugs.142  According to the Canadian Drug Manufacturers Association (CDMA), the WTO
ruling translates only into a delay of several weeks in getting generic drugs – and their associated cost
savings – to Canadian consumers.143  In 1999, sales of generic pharmaceutical products in Canada
totalled some Can$800 million, representing about 9% of the Can$8.9 billion of sales of all
                                                     
134 The CITT online information.  Available at:  ftp://ftp.citt.gc.ca.
135 Reference No. SK-SPMC-001-98346 (MERX online information.  Available at: http://www.merx.
cebra.com).
136 WTO document GPA/21/Add.1, 16 October 1998.
137 WTO document IP/Q3/CAN/1, 5 May 1998.
138 WTO documents IP/Q4/CAN/1, 28 July 1998, and IP/Q4/CAN/1/Rev.1, 12 October 1998.
139 WTO document IP/N/3/Rev.3, 10 November 1998.
140 Canada's position can be found in the DFAIT's online information.  Available at:  http://www.dfait-
maeci.gc.ca/tna-nac/summary-e.asp.
141 WTO document WT/DS170/R, 5 May 2000.
142 Regulations Repealing the Manufacturing and Storage of Patented Medicines Regulations,
Regulatory Impact Analysis Statement, Canada Gazette , Part 1, August 5, 2000.
143 Canadian Drug Manufacturers Association (CDMA), press release, March 17, 2000.Canada WT/TPR/S/78
Page 45
pharmaceutical products.144  According to the CDMA, generic drugs are on average 50% cheaper than
patented drugs, and research and development activities in pharmaceuticals are encouraged by this
legislation.145
158. A second WTO panel examined the U.S. claim that Canada had failed to grant a full 20-year
patent term to patents applied for prior to October 1989.146  The panel agreed with the U.S. claim.
The panel decision was subsequently upheld by the Appellate Body of the WTO.
V. MARKET ACCESS IN SELECTED SECTORS
(1) FINANCIAL SECTOR REFORM
159. Following the recommendations made by the Task Force on the Future of the Canadian
Financial Services Sector, which reported in 1998147, the Government announced, in June 1999, a
reform of the financial sector, improving conditions for foreign market access to Canada's trade infinancial services.  This reform is described below.  In July 1999, Canada communicated to the
WTO a revised schedule of commitments in financial services
148;  the schedule came into force on
10 April 2000.  In June 2000, the Government introduced legislation (Bill C-38) to implement the
reform and create a new policy framework for financial services.
(i) Foreign bank branching
160. The new branching regime is set out under the title of Authorized Foreign Banks in Part XII.1
of the Bank Act .  It is supplemented by regulations and guidelines developed by the Office of the
Superintendent of Financial Institutions (OSFI).149  Also, Canada has abolished the requirement for
WTO Member foreign bank subsidiaries to request ministerial approval to establish more than one
branch.  The new regime (see Annex V.1), creates opportunities for foreign banks entering the
Canadian market, mainly for commercial banking;  however, it appears to provide only modest
additional scope for retail banking, notably because of the restrictions on the ability of foreign bankbranches to take deposits.  Since 1999, 16 applications have been made to open foreign bank
branches;  two have already been approved.
161. Before the new branching regime came into force in June 1999, foreign bank branching was
not allowed, putting foreign banks at a disadvantage compared with their Canadian competitors.  For
example, they were precluded from competing for large corporate loans, as they could not lend morethan 25% of the subsidiary's capital to a single bo rrower, and could not take advantage of their parent
bank's capital.  Another disadvantage of operating as a subsidiary was the obligation to maintain a
separate board of directors, half of whom had to be Canadian residents.
150
                                                     
144 Patented Medicine Prices Review Board (1999).
145 The Canadian Drug Manufacturers Association online information.  Available at:  http://www.
cdma-acfpp.org.
146 WTO document WT/DS170/R, 5 May 2000.
147 See also Chapter IV(4) above for competition policy developments in the financial sector;  and
WTO (1998), Chapter IV(5)(i).
148 WTO document S/C/W/118, 23 July 1999.
149 OSFI online information.  Available at:  http://www.osfi-bsif.gc.ca.
150 The Canadian Bank Act stipulates that resident Canadians must constitute a majority of directors of
the Board of a foreign subsidiary.WT/TPR/S/78 Trade Policy Review
Page 46
(ii) Expected changes in "the widely held rule"
162. Among the recommendations of the Task Force was a new size-based ownership regime that
would be more welcoming to new entrants.  Under the current rule, no one person (Canadian or
foreign) may own more than 10% of any class of shares of a "Schedule I" bank.  The June 1999 policy
paper, "Reforming Canada’s Financial Services Se ctor:  A Framework for the Future", put forward a
new definition of "widely held" that would permit an investor to own up to 20% of any class of votingshares, and 30% of any class of non-voting shares, of a widely held bank, subject to a "fit and proper"
test.
151  This would allow banks to enter into substantia l share exchanges, in order to solidify strategic
alliances and joint ventures.  The new ownership rules are expected to pass Parliament before the
end of 2000.
163. The policy paper also proposed to establish three classes of bank, based on size of equity, for
the purposes of determining ownership restrictions: small (less than Can$1 billion), medium
(Can$1 billion to Can$5 billion) and large (greater than Can$5 billion).  Under the Bank Act, small
banks would have no ownership restrictions other than "fit and proper" tests.  Medium-sized banks
would be allowed to be closely held, but subject to a public float of 35% of voting shares.  Large
banks must remain widely held and cannot be acquired.  The policy paper contemplates that existingSchedule I banks with equity of less than Can$5 bi llion would be subject to the widely held rule.
However, the Minister of Finance would have the discretion to consider changing the status of the
bank to closely held.
152
164. The widely held rule means that, in practice, control of large Canadian banks cannot be
acquired by single entities.  However, the authorities have stated that mergers can be a viable business
strategy, but that each merger proposal must be assessed on its own merits.  Consequently, the
Government is implementing a review process for merger proposals between large banks that will
include a formal mechanism for public input.  In addition to reviews by the Competition Bureau and
the Office of the Superintendent of Financial Institutions, merger proponents will be required to
prepare a Public Interest Impact Assessment, which the House of Commons Finance Committee will
be asked to review.  In December 1998, the Government indicated that it would not consider further
merger proposals until the new framework was in place.
(iii) Insurance services
165. Early in 1999, legislation was passed to permit large federally regulated mutual life insurance
companies to convert into stock companies, a process known as demutualization.  Canada's
four largest mutual insurance companies have recently demutualized.  With demutualization,
insurance companies intend to strengthen their capital bases by public offerings of shares, andfacilitate the re-organization of their activitie s through mergers and the use of holding-company
structures.  Demutualized life insurance companies are now able to issue common shares, as well as
preferred shares and debt instruments and are able to borrow for short-term liquidity purposes.
166. Currently, the Insurance Companies Act requires that these companies, if they have assets in
Canada of Can$7.5 billion or more on 31 December 1991, be “widely held”, defined as no one personhaving a significant interest in any class of the converted company or the upstream holding company.
A person has a “significant interest” in a class of shares of a company if the person beneficially owns
or controls an entity that beneficially owns more than 10% of any class of shares.  Any other
                                                     
151 Department of Finance online information.  Available at:  http://www.fin.gc.ca/finserv/docs/
finserv2e.html#Ownership.
152 Department of Finance online information.  Available at:  www.fin.gc.ca/newse00/data/00-
047_2e.html.Canada WT/TPR/S/78
Page 47
Canadian or foreign-owned stock insurance companie s need not be widely held.  The widely-held rule
does not apply to federally regulated companies under foreign control.
167. A new ownership regime has been introduced in Parliament for large demutualized life
insurance companies as part of Bill C-38 (see above in the case of banks).  During a two-year
transition period that will end in 31 December 2001, no mergers among, or acquisitions
of, demutualized insurers would be permitted; co mpanies that had equity and surplus in excess of
Can$5 billion prior to their demutualization will be required to meet a new widely held requirement in
which no person may own greater than 20% of any clas s of voting shares or 30% of any class of non-
voting shares.  At the end of the transition period, such companies would be required to continue to
meet this new widely held requirement and would not be permitted to be acquired (subject to certain
exceptions that will permit the company to be ow ned, for example, by a widely held insurance
holding company).  The Minister would have discretion to change the ownership status of these
companies.  Companies that had surplus and equity between Can$1 billion and Can$5 billion prior to
their date of demutualization would be required  to maintain their current widely held status
(maximum 10% in any class of shares) during the transition period.  Once the transition period ends,
these companies may become closely held, subject to a 35% public float requirement.  Anyperson may own up to 100% of the shares of  a demutualized life insurance company with
equity under Can$1 billion with the approval of the Minister of Finance.  Existing federal stock
insurance companies would be required to have a 35% public float of voting shares if equity exceeds
Can$1 billion.  Closely held insurance companies would be allowed to grow beyond Can$5 billion in
equity without any ownership restrictions, other than the 35% requirement.
168. The conditions of investment in the Canadian insurance industry have not otherwise changed
since 1998.  Although investment is subject to re view, prior approval, and to certain ownership
restrictions including at provincial level (Table II.1), foreign insurance companies play an important
role in the Canadian market.  In the case of bo th life and non-life insurance, foreign companies may
establish as a subsidiary or a branch, or they may establish a new insurance business or acquire an
existing Canadian enterprise, subject to notification to Investment Canada and approval by federal and
in some cases provincial authorities.
153  A foreign insurance company wishing to register in Canada
must have assets of at least Can$200 million, with a minimum capital and surplus margin of between
5% and 10% of liabilities.  Furthermore, a foreign insurance company wishing to insure risk in
Canada must maintain assets vested in trust in a Canadian financial institution.  Initially, a foreign
insurance company is expected to vest in Canada assets that would cover the projected capital
requirements for a period of three to five years.
169. Life insurance and non-life businesses must be carried on in separate companies.  Widely held
insurance companies are permitted to own "Schedul e II" (not widely held) banks and to network
products of other financial institutions, including other insurers.  Under Bill C-38, these companies
would be permitted to own a bank under Can$5 billion, subject to the 35% float requirement.
However, under Bill C-38, banks, and trust and loan companies would remain prohibited fromoffering most insurance services except credit-related
 insurance  products on behalf of insurance
companies.
(2) AIR TRANSPORT SERVICES
170. While Canada has retained barriers to foreign en try (Table II.1), there has been strong rivalry
between domestic airlines.  As a result, and because of the relatively small size of the Canadian
market, only one, now dominant, carrier has survived.  This generates competition policy concerns.
                                                     
153 Insurance companies may be regulated at the provincial or federal level.WT/TPR/S/78 Trade Policy Review
Page 48
(i) Market and competition policy issues
171. The airline industry has undergone a continuous process of restructuring since 1987-88, when
the market was deregulated and Air Canada was privatized, with subsequent strong competition on
fares with Canadian Airlines, the other main airline.154  Access to all internal routes is now open to free
entry and exit for Canadian carriers.  All fares ar e decontrolled;  services on monopoly or duopoly routes
may be  withdrawn on 120 days' notice;  and licensing of new entrants is based on a "fit, willing, able"
criterion.155  The Federal Government has also to a large extent withdrawn from involvement in
infrastructure management, leading to the commercialization of main airports and the air navigation
system (now NAVCAN), and the decentralization of responsibilities  for smaller airports.156
172. Intense commercial rivalry has resulted in the exit of a number of firms.  In 1999, Air Canada
was allowed to purchase Canadian Airlines, which was facing immediate bankruptcy, despite the fact
that the two carriers together accounted for over 90% of total domestic passenger revenues.  TheCompetition Bureau has expressed the view that very significant competition concerns will develop in
the domestic market as a result of a dominant carrier emerging from the purchase of Canadian
Airlines by Air Canada.
157  For example, at Toronto Pearson Airport, Air Canada, Canadian Airlines,
and their regional affiliates accounted before the takeover for 75% of slots held by all airlines, and for
92% of slots held by Canadian carriers.  According to the authorities, Air Canada has ceded slots at
Toronto as part of the approval for the take-over.  In addition, Air Canada has ceded gates and
facilities at five airports for reallocation to competing domestic services suppliers.  Further, theBureau was of the view that competition concerns may also arise in certain international and
transborder markets if the dominant carrier provides most of the international services out of Canada.
173. In order to maintain competition in the sector , the Bureau has advocated that the Government
review the "largest regulatory barriers to entr y into the airline industry", namely the current
restrictions on foreign ownership and control, and the prohibition of cabotage.  Meanwhile, Canadahas designated three airlines to provide scheduled services to France, Germany, and the United
Kingdom.
174. In July 2000, legislation was passed in order to protect the public interest against excessive
pricing in the dominant carrier environment, foster competition, and protect consumers.  In particular,
the legislation is expected to prevent price gouging and to ensure that a full range of fares is providedin all markets.
158  This legislation incorporates several commitments by Air Canada,
regarding competition, fair treatment of employees, and maintenance of services to communities.
In addition, changes were made to the Competition Act to expand the Bureau's ability to deal with
anti-competitive acts, including predatory pricing, in this industry.159  Attaining these objectives could
also be helped by permitting cabotage:  if foreign airlines were allowed to serve the Canadian
                                                     
154 The 1996 Review  of Canada contained a discussion of the policy framework for air transport
(WTO, 1996).
 155 "Fit" means the ability to meet minimum financial requirements imposed by the Act, while "able"
refers to the carriers' compliance with existing safety requirements.
156 For more details, see Transport Canada online information.  Available at:  http://www.tc.gc.ca/
airports/nap/nov99Update.htm.
157 Letter from the Commissioner of Competition to the Transport Minister, 22 October 1999 [Online].
Available at:  http://strategis.ic.gc.ca.
158 Transport Canada online information.  Available at:  http://www.tc.gc.ca/nrelease/00_H005e.htm.
159 For more information see the Competition Bureau online information.  Available at:  http://strategis.
ic.gc.ca.Canada WT/TPR/S/78
Page 49
domestic market, the existence of a dominant carrier might no longer be a problem.160  F u r t h e r ,
multilateral air transport liberalization could benefit Canadian consumers and expand international
market opportunities for the national flag carrier(s).161
(ii) Foreign investment and trade restrictions
175. Under the "widely held" rule, a single shareholder (domestic or foreign) is prevented from
owning more than 15% of Air Canada.  No indivi dual ownership restrictions apply to any other
airline.  In November 1999, this legislation was invoked by a Quebec court to rule illegal an offer by a
Canadian buy-out company (Onex) to purchase and merge Canadian Airlines and Air Canada.  The
court decision opened the way for the purchase of Canadian Airlines by Air Canada.
176. Approval by Investment Canada is required fo r the acquisition of any transport company with
assets of over Can$5 million;  exempt are companies operated by non-Canadian residents andcompanies engaged exclusively in cross-border transport.  New investment in transport is not subject to
review.  Under the Canada Transportation Act, on ly "Canadian" companies may provide domestic air
transport services and those international services negotiated under bilateral air agreements.  The Act
defines "Canadian" as a company with a maximum of 25% of the voting shares owned by foreign
citizens.  The Act also requires that an airline be under effective Canadian control.
177. Currently, access to international and transborder routes is organized through over 70 bilateral
aviation agreements (traffic rights are not covered by the GATS).  Many agreements impose
restrictions on capacity, and some specify aircraft type.  As a result of the 1995 Canada-U.S. Aviation
Agreement, the two governments refrain from regulating prices, limiting the number of airlines, and
stipulating routes.  As in most other countries, foreign carriers are prohibited from flying domestic
routes ("cabotage") in Canada, in order to protect the market of domestic carriers.
178. Canada's air transport commitments under GATS are limited to aircraft repair and
maintenance services and computer reservation systems.  Canada has not bound consumption abroad
of repair and maintenance services, thus retaining the possibility of requiring carriers to use domestic
repair and maintenance facilities.  The selling and marketing of air transport services and aircraft
maintenance and repair services have been listed as MFN exemptions under Article II of the GATS.
(3) T
ELECOMMUNICATIONS SERVICES
179. As a result of Canada's long-term commitment to liberalization in the telecommunications
industry, a liberal regime now provides for resale-based competition in most basic
telecommunications services.  No foreign ownership restrictions apply to resellers.  Since 1998, the
following measures have been abolished:  Telesat's exclusive rights on satellite facilities and earth
stations;  a requirement that Canadian equity holdings in mobile satellite equal Canadian usage levels;Canadian ownership requirements on the landing of sub-marine cables;  and Teleglobe's monopoly on
overseas (non-U.S.) facilities-based services.
180. The authorities have noted that competition in the Canadian market has resulted in both
business and residential telephone service prices that are lower than in other G7 countries.  Canada
also has the lowest G7 wireless communications costs and is outpacing its main trading partners in
                                                     
160 Opinion of experts regarding the issue of cabotage, Letter from the Commissioner of Competition to
the Minister of Transport, 22 October 1999 (available online at:  http://strategis.ic.gc.ca/SSG/cto1638e.html).
161 For a discussion of negotiations on cabotage with the United States, see Standing Committee on
Transport (1999).WT/TPR/S/78 Trade Policy Review
Page 50
terms of online subscribers with a high-speed Internet connection.162  In part due to this, Canada is
not presently planning to ease or eliminate existing restrictions under which foreign equity in all
facilities-based suppliers is limited (Table II.1).  Foreign investment in facilities-based
telecommunications service suppliers is permitted up to a cumulative total of 46.7% of voting shares,
based on 20% direct investment and 33.3% indirect investment.  In addition, at least 80% of the
members of the board of directors must be Canadian citizens and the service supplier must beCanadian-controlled.  Canada has undertaken a commitment to abide by the WTO Reference Paper on
Regulatory Principles.
(4) C
ULTURAL POLICY AND TRADE IN RELATED SERVICES
181. Cultural services, which include visual and performing arts, publishing, music, film, video
and television production and programming, as well as some types of content distributed on theinternet, continue to be subject to a number of specific production, trade, and investment measures
designed to ensure the preservation and promotion of Canadian culture and identity.  The Secretariat
Report for Canada's 1996 Review contained an overview of the main trade-related instruments of
support, often granted in combination, which include direct subsidies, tax incentives, foreign
ownership restrictions (Table II.1) and local-content requirements.
163  As an example of the latter, the
federal broadcasting regulator, the Canadian Radio-Television and Telecommunications Commission
(CRTC), requires that for Canadian conventional, over-the-air broadcasters, Canadian programming
make up 60% of television broadcast time, and 50% during the evening hours (6 p.m. to midnight).
For other services, such as specialty television and pay-TV, the required percentage of Canadian
content varies according to the nature of the service, but is generally less than the requirement for
conventional television.  The CRTC requires that 35% of "popular" musical selections broadcast on
radio should qualify as "Canadian" unde r a government-determined points system.
182. The Canadian Radio-Television and Telecomm unications Commission has decided not to
regulate services on the Internet under the 1991 Broadcasting Act or under the Telecommunications
Act.  The Broadcasting Act is designed to "safeguard, enrich and strengthen the cultural, political,
social and economic fabric of Canada".  The Act encourages the development of Canadian expression
through a broadcasting system that provides "a wide range of programming that reflects Canadianattitudes, opinions, ideas, values and artistic creativity".
164  The CRTC's decision not to regulate
content on the Internet reflects, inter alia , the existence of a substantial Canadian presence on the
Internet, supported by demand for Canadian new media content.
183. Canada has not made any commitments under the GATS regarding cultural services
industries.165  This has not prevented certain aspects of it s cultural policies  to be challenged in two
instances under the WTO.  In 1996, a prohibition on the importation of certain periodicals, including
split-run editions;  an excise tax on split-run editions of periodicals;  and the application of differential
postal rates between domestic and foreign periodicals were challenged under the GATT 1994 as
restrictions on trade in goods.166  All three were found not to be in conformity with GATT 1994,
notably Article XI (quantitative restrictions) in the case of the import prohibition, and Article III(national treatment in applying internal taxes and regulations) with respect to the excise tax and the
postal subsidy (see also Chapter II(2)(ii)).
                                                     
162 OECD (1999).
163 WTO (1996).
164 Information provided by the authorities in the context of this review.
165 Support measures for film, video, and television programming and production are listed as MFN
exemptions under Article II.
166 WTO documents WT/DS31/R, 14 March 1997, and WT/DS31/AB/R, 30 June 1997.Canada WT/TPR/S/78
Page 51
184. In May 1999, a bilateral agreement on periodicals was reached with the United States to
limit the share of advertising targeted at Canadians.  The agreement amends the prohibition on
foreign publishers selling advertising services aimed primarily at the Canadian market (C-55, the
Foreign Publishers Advertising Services Act of June 1999), to allow two limited forms of access:
(i) a de minimis exemption, which will allow foreign publishers to publish immediately up to 12% of
advertisements aimed at the Canadian market, up to 15% in 18 months and 18% 36 months after the
date of enactment of the Act;  and (ii) an exemption that will enable foreign publishers to have access
to a greater percentage of the Canadian advertising services market, providing they create majority
Canadian content and establish a new periodical publishing business in Canada.  Acquisitions of
Canadian publishers will not be permitted.
185. In addition, the rules governing tax deductibility available to Canadian advertisers were
changed to provide full deductibility in any periodical – as defined in the Foreign Publishers
Advertising Services Act,  regardless of the nationality of ownership – that includes at least 80%
original or Canadian content.  Canadian advertisers will receive half the deduction for ads placed in
foreign periodicals under the de minimis exemption, as well as advertisements placed in magazines
created by foreign investors that include less than 80% original or Canadian content.  The authoritieshave stated that the policy does not discriminate among foreign suppliers.  In December 1999, the
Canadian Heritage Minister announced a three-y ear Can$150 million fund to provide direct financial
assistance to Canadian magazines.
167
186. Under the current rules applicable to newspapers (i.e. published more frequently than once a
week), corporations advertising in newspapers that are more than 25% foreign owned are not allowed
to deduct advertising costs as a business expense.
187. In another case, described in the previous Review of Canada, certain aspects of the foreign
investment guidelines for film distribution (Table II.1) were the subject of consultations requested by
the European Union, under Articles II (MFN tr eatment) and III-1 (Trans parency) of the GATS.168
The guidelines state, inter alia , that investment to establish new distribution business in Canada will
only be allowed for importation and distribution of proprietary products, for which the importer owns
world rights or is a major investor.  These guidelines apply only to foreign businesses that applied todistribute films in Canada after February 1987.  Polygram, the investor at the centre of the EU
complaint, invested after 1987 and was thus subject to the guidelines.  It was subsequently subject to
two further changes in ownership and origin and in each case the transaction was subject to the
guidelines.  Between 1986-87 and 1997-98, foreign-owned distributors earned an average of 85% of
theatrical distribution revenues in Canada.
(5) P
ROFESSIONAL SERVICES AND MOVEMENT OF NATURAL PERSONS
(i) Professional services
188. The Secretariat Report for the 1998 Review of Canada contained a detailed review of
measures affecting trade in professional services.169  As noted therein, province-specific limitations
constitute the main obstacle to the provision of professional services by foreign persons.  In particular,incorporation is prohibited in many provinces, and only sole proprietorship or partnership is allowed
(e.g. legal, accountancy, and architectural services).  When incorporation is permitted (e.g.
engineering), there are requirements to maintain a minimum percentage of local directors.
                                                     
167 For details see Canadian Heritage online information.  Available at:  http://www.pch.gc.ca.
168 WTO document WT/DS117/1, 22 January 1998.
169 WTO (1998), Chapter IV(5)(iv).WT/TPR/S/78 Trade Policy Review
Page 52
189. With regard to national treatment limitations, all professionals who wish to practice must be
licensed or accredited by provincial professional bodies.  Each professional body sets its own rules,
regulations, and standards for professional practice.  Some provinces and territories maintain
residency requirements for certain licensed professions, such as architects and engineers, which
prevent serving a market on a cross-border basis.
190. In December 1998, Canada notified changes in provincial requirements that had taken place
between 1994 and 1997.  In addition, the prohibition on licensing of non-resident general insurance
agents was repealed in 1998.  Thus, access and national treatment at provincial level may be more
liberal in practice than that contained in Canada's 1994 GATS commitments.  The notified changes
are the following:
- In Manitoba, the bylaws of the Institute of Chartered Accountants were amended in
November 1995, to remove the permanent residency requirement for membership in the
provincial institute;  the bylaws of the Certified General Accountants Association were
amended in September 1996 to eliminate the residency requirement for membership.170
- Since 1996 and 1997, respectively, commercial presence is no longer restricted to sole
proprietorships and partnerships for law firms in Nova Scotia and New Brunswick.171
- Since January 1995, there is no residency requirement to become accredited as a public or
chartered accountant in Prince Edward Island.172
- Since 1994, the amended Code des Professions du Québec does not require citizenship for
accreditation as one of the 24 designated professionals governed by the Code, nor for use of
any of the 20 professional titles.173
191. These subfederal regulations also affect interprovincial services trade and labour mobility:
according to submissions made by representatives of lawyers', engineers', and accountants'associations to the Standing Committee on Foreign Affairs and International Trade, one common
issue was barriers for their members to work not only abroad but in other provinces.
174  In order to
address some of these barriers, the Agreement on Internal Trade is seeking the maximum possible
reconciliation of differences in occupational standards for over 50 regulated professions and trades.
In this context, guidelines have already been prep ared laying out a process for mutual recognition and
reconciliation of occupational standards across provinces.175
(ii) Movement of natural persons
192. GATS commitments regarding the movement of natural persons ("mode 4") specify under
which conditions foreign persons may enter a country on a temporary basis to supply a service.  The
Uruguay Round negotiations on mode 4 resulted from the demands both by developing countries andmultinational companies for greater access for their se rvices sector workers.  The relatively limited
commitments by WTO Members in this area, reflect the domestic regulatory concerns about
                                                     
170 WTO document S/C/N/86, 14 December 1998.
171 WTO documents S/C/N/87 and 88, 14 December 1998.
172 WTO document S/C/N/89, 14 December 1998.
173 However, certain designated professional associ ations in Quebec maintain the discretion to impose
permanent residency requirements.
174 House of Commons (1999), pp. 6-10.
175 Further information about these guidelines can be found at Human Resources Development Canada
online information.  Available at:  http://www.hrdc.gc.ca/stratpol/socpol-old/mobility/guide/guide_e.html.Canada WT/TPR/S/78
Page 53
immigration and the protection of the domestic labour force.176  Canada's priorities in this
area, implemented by Citizenship and Immigration Canada, are to recruit skilled workers and attract
self-employed workers to provide a steady flow of talent and new skills to the Canadian labour
force.177  Canada's Parliament is considering legislation to modernize the selection system for skilled
workers and business immigrants and facilitate the entry of temporary foreign workers.
193. Canada's WTO commitments, similarly to those commitments made by other Members, are
limited to skilled personnel:  intra-corporate transferees (executives, managers,and specialists) are
allowed to work in Canada for a maximum period of three years provided the foreign firm maintains a
commercial presence in Canada;  and business visitors may enter the country for up to 90 days to
market or negotiate services contracts, but without making sales to the public or supplying services
themselves in return for payment.  Canada's co mmitments also provide for the temporary entry and
stay, without the requirement of a commercial presence, of the following foreign professionals:
engineers, agrologists, architects, forestry professionals, geomatics professionals, land surveyors,
foreign legal consultants, urban planners, and senior computer specialists.
194. NAFTA Chapter 16 facilitates the temporary entry and stay of four categories of business
persons from NAFTA member countries to carry on ac tivities related to trade in goods and services:
business visitors, professionals, intra-company transferees, traders and investors.  Access under the
NAFTA includes a wider group of persons than WTO commitments.  Appendix 1603.D.1 of
Chapter 16 lists 63 professions that may enter into another NAFTA member country to engage in
employment without the requirement for job validation, labour certification or other forms of labour
market tests.
195. In September 1998, Canada introduced a pilot project to authorize employment without
labour market testing to spouses of  "highly skilled foreign workers who are admitted to Canada inkey high-growth sectors" for at least six months.
178  Over 1,100 authorizations have been issued under
this process, which has been found effective as a recruitment aid and as a support for attracting
foreign investment in Canada.  Therefore the Government is continuing the project while a permanent
process is being designed.  
196. In 1999, Citizenship and Immigration Canada issued approximately 190,000 temporary
employment authorizations.  Authorizations are normally issued following a labour market
assessment by Human Resources Development Canada, certifying that no Canadians are available to
fill the jobs.  They may also be issued to accommodate international agreements where reciprocal
opportunities exist for Canadians or where significant employment benefits to Canada will result.
                                                     
176 For a discussion of the movement of natural persons and labour mobility, see Young (1999).
177 Citizenship and Immigration Canada [Online].  Available at:  http://www.cic.gc.ca.
178 Citizenship and Immigration Canada [Online].  Available at:  http://www.cic.gc.ca/english/press/98/
9853-pre.html.WT/TPR/S/78 Trade Policy Review
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Annex V.1:  Canada's new foreign bank branching rule1
1. The new foreign bank branching rules do not affect the conditions for operating a foreign
subsidiary.  An authorized foreign bank (i.e. a foreign bank incorporated under the laws of another
jurisdiction outside Canada) may establish a bank branch under the Bank Act.2   The new branching
regime permits foreign banks to directly undertake banking activities in Canada without establishing a
fully capitalized subsidiary.
2. The new rules stipulate that a bank branch must be established "directly under the authorized
foreign bank", so that the banks are adequately regulated and supervised by their home regulator, in
addition to the Canadian regulator, the Office of the Superintendent of Financial Institutions (OSFI).
This rule is in place to prevent a foreign non-bank entity from establishing a bank branch in Canada.
3. A branch in Canada will not be required to maintain a separate board of directors in Canada.
However, the foreign bank must appoint a principal officer to be the focal point of contact between
supervisors and the foreign bank regarding its operation in Canada.  The principal officer is required
to be a Canadian resident and an employee of the foreign bank.
4. However, foreign bank branches in Canada are limited in their deposit-taking activities.
Specifically, the new rules state that an authorized foreign bank can establish only one of two types ofbank branches:  (i) a full service bank branch, which may take deposits above Can$150,000 or (ii) a
lending bank branch, which may not take any deposits.  A lending bank branch can only borrow
money from financial institutions.  According to the authorities, this restriction is in place so as not to
place the funds of "unsophisticated" Canadians at risk.  A foreign banks wishing to take retail deposits
must establish a bank subsidiary in Canada, which may open up additional branches in other locations
within Canada.
5. The guidelines developed by OSFI require a foreign bank wishing to establish a full-service
branch to have a minimum of Can$5 billion in world-wide assets, the same amount required to
establish a foreign bank subsidiary.  Foreign banks wishing to establish a lending branch need not
meet this requirement.
6. Full-service branches and lending branches will be required to maintain a deposit with a
Canadian financial institution approved by the Superintendent of Financial Institutions.  The depositfor full-service branches will be set at 5% of branch liabilities, or Can$10 million, whichever is
greater.  Bill C-38, the proposed new policy framework for domestic banks, proposes to reduce the
capital requirement for banks and full-service branches to Can$5 million.  Lending branches will be
required to maintain a deposit of Can$100,000.
7. The new rules also preclude foreign bank branches from engaging in the activities of a
specialized financing corporation, as defined in the Bank Act.  As a result, foreign branches may not
provide specialized business management, make investments or provide financing or advisory
services.  Foreign banks may establish a “specialized financing corporation” in Canada to provide
                                                     
1 The new branching rules are set out under the title of Authorized Foreign Banks in Part XII.1 of the
Bank Act .  They are supplemented by regulations of the Government of Canada and guidelines developed by the
Office of the Superintendent of Financial Institutions (See OSFI online information.  Available at:  www.osfi-bsif.gc.ca.
2 Requirements to become an authorized foreign bank (and consequently operate subsidiaries and
branches in Canada) are contained in Sections 524 to 536 of the Bank Act, supplemented by regulatoryguidelines developed by the Office of the Superintendent of Financial Institutions (See OSFI online information.Available at:  http://www.osfi.gc.ca).Canada WT/TPR/S/78
Page 55
specialized business management or advisory services.  Bill C-38 proposes to provide foreign bank
branches with the in-house power to undertake specialized business management or advisory services.
8. An authorized foreign bank cannot establish a lending bank branch in conjunction with a full-
service bank branch, a bank subsidiary, a loan company, or a trust company that accepts deposits.  A
foreign bank that has been authorized to establish a lending bank branch may not simultaneously
operate a bank or any other deposit-taking financial institutions in Canada.  This is designed to ensurea level playing field for domestic banks, which cannot choose to operate a lighter-regulated banking
entity such as a lending bank branch.  Bill C-38 proposes to eliminate these restrictions.Canada WT/TPR/S/78
Page 57
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