PRESS/TPRB/50
19November 1996
TRADE POLICY REVIEW BODY
Review ofCanada
TPRB 'sEvaluation
TheTrade Policy Review Body oftheWorld Trade Organization (WTO) conducted itsfourth
review ofCanada 'strade policies on18and19November 1996. ThetextoftheChairperson 's
concluding remarks isattached asasummary ofthesalient points which emerged during thetwo-day
discussion.
Thereview enables theTPRB toconduct acollective examination ofthefullrange oftrade
policies andpractices ofeachWTO member country atregular periodic intervals tomonitor significant
trends anddevelopments which mayhaveanimpact ontheglobal trading system.
Thereview isbased ontworeports which areprepared respectively bytheWTO Secretariat
andthegovernment under review andwhich cover allaspects ofthecountry 'stradepolicies, including:
itsdomestic lawsandregulations; theinstitutional framework; bilateral, regional andother preferential
agreements; thewider economic needs andtheexternal environment.
Arecord ofthediscussions andtheChairperson 'ssumming-up, together withthesetworeports,
willbepublished induecourse asthecomplete trade policy review ofCanada andwillbeavailable
from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211 Geneva 21.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992 &1996), Cameroon
(1995), Canada (1990, 1992, 1994&1996), Chile (1991), Colombia (1990 &1996), Costa Rica(1995),
Côted'Ivoire (1995), theCzech Republic (1996), theDominican Republic (1996), Egypt (1992), the
European Communities (1991, 1993 &1995), Finland (1992), Ghana (1992), Hong Kong (1990 &
1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and1994), Israel (1994), Japan
(1990, 1992&1995), Kenya (1993), Korea, Rep.of(1992 &1996), Macau (1994), Malaysia (1993),
Mauritius (1995), Mexico (1993), Morocco (1989 &1996), NewZealand (1990 &1996), Nigeria
(1991), Norway (1991 &1996), Pakistan (1995), Peru(1994), thePhilippines (1993), Poland (1993),
Romania (1992), Senegal (1994), Singapore (1992 &1996), Slovak Republic (1995), South Africa
(1993), SriLanka (1995), Sweden (1990 &1994), Switzerland (1991 &1996), Thailand (1991 &1995),
Tunisia (1994), Turkey (1994), theUnited States (1989, 1992, 1994&1996), Uganda (1995), Uruguay
(1992), Venezuela (1996), Zambia (1996) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
Review ofCanada
CONCLUDING REMARKS BYTHE CHAIRPERSON
Over thepasttwodays, theTrade Policy Review Body hasconducted thefourth review -the
firstunder WTO provisions -ofCanada 'strade policies andpractices. These remarks, made onmy
ownresponsibility, areintended tosummarize thesalient points ofthediscussion; theydonotsubstitute
fortheBody'scollective evaluation andappreciation, which willbereflected intheminutes ofthe
meeting.
Thediscussion developed under fourmain themes: (i)thegeneral economic situation andthe
process ofderegulation andliberalization; (ii)regional andmultilateral trade relations; (iii)trade and
investment policies; and(iv)sectoral issues.
Inaddition tothediscussion, participants raised alarge number ofquestions inwriting. The
representative ofCanada provided comprehensive written replies inthecontext ofthemeeting and
undertook toprovide further details asnecessary.
General economic situation andtheprocess ofderegulation andliberalization
Members noted theimprovement inCanada 'smacro-economic performance inthepasttwo
years. Economic growth hadessentially beendriven byexports, inflation waskeptlow,andfiscal
policy aimed atbringing thefederal budget intomedium-term balance. Unemployment remained high,
despite some recent improvement; Members asked whether thismight leadtoprotectionist pressures.
Members noted thatthestrength ofexports benefited both from strong demand inthe
United States andfrom thestructural effects oftrade liberalization under theWTO andtheNAFTA.
Reflecting strong economic expansion intheUnited States, economic integration deepened, withthe
U.S.share ofCanada 'strade rising tofour-fifths ofmerchandise exports andtwo-thirds ofimports.
WhileacknowledgingthatthisreflectedCanadianfirms'abilitytooperateinahighlycompetitivemarket,
several Members stressed thecyclical vulnerability inherent insuchdependence ononedestination.
SomeMembersaskedwhetherCanada'sparticipationinregionalandbilateraltradeinitiatives,comprising
theFTAA, APEC andfree-trade agreements withIsrael andChile, could beseenasaresponse tothis
trend.
MembersrecognizedthatCanada'seffortstowardstradeliberalization,complementedbydomestic
reforms, hadcreated astronger basisforlong-term economic expansion. Most sectors oftheeconomy
andawiderange ofpolicy areas hadbeenaffected.
Members noted acontinuing duality inCanada 'stradepolicy between thefederal competence
forthenegotiation ofinternational agreements andtheprovinces 'responsibility fortheimplementation
ofsuch agreements incertain areas. Inthisconnection, Members stressed theneed forcloser
co-ordination between thefederal Government andprovinces andexpressed concerns about remaining
provincial restrictions inareassuchasgovernment procurement, investment, localcontent requirements
andsubsidies. Thesimultaneous entry intoforce oftheNAFTA, theWTO Agreements andthe
Agreement onInternal Trade (AIT) showed thepossibilities ofsynergy among thedifferent levels of
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government action; Members thusencouraged Canada tocomplete andimplement theAITinorder
toaddress suchrestrictions.
Therepresentative ofCanada replied thathiscountry wasgreatly dependent oninternational
trade andinvestment flows; further trade liberalization andinternal deregulation, complemented by
prudent andbalanced fiscal policies, were seenasthepathtomaximizing economic growth. There
were nosigns ofprotectionist pressures resulting from theemployment situation.
ChallengesinherentinCanada'sfederalsystemwerebeingmetbyconstantandcloseco-operation
between federal andprovincial authorities. Under theAIT, work wasinprogress tostreamline and
harmonize regulations inmany areas ofgoods, services andfactor movements; negotiations were
underway toextend itsscope andcoverage, including inareas suchaslabour mobility, procurement
andenergy. Hecitedinstances where provincial practices hadbeenbrought intolinewithCanada 's
international obligations.
Therepresentative didnotbelieve thatthesoftwood lumber agreement withtheUnited States
would leadtochallenges bytrading partners intheWTO.
Regional andmultilateral trade relations
Members recognized Canada 'sstrong support forthemultilateral trading system andits
contribution topreparations fortheWTO Ministerial Conference inSingapore. They noted Canada 's
progress inimplementing andconsolidating WTO Agreements, which hadcontributed toamoreliberal
trade régime inseveral areas. While showing appreciation forCanada 'spropensity touseWTO
procedures tosolve bilateral disputes withtheUnited States, some Members sought clarification on
thebasis forchoosing between WTO andNAFTA procedures.
Members generally sawCanada 'sparticipation inregional initiatives through APEC, theFTAA
andthenewly concluded free-trade agreement withChile ascomplementing itsactions atthemultilateral
level. They alsoviewed Canada 'sparallel implementation oftheNAFTA andWTO agreement as
complementary ingeneral. However, someMembers expressed concerns about possible tradediversion
stemmingfrombilateralorregionalpreferences;inthisconnection,theylinkedtheexpansionofbilateral
tradeintextiles andclothing andinmotor vehicles tothestrengthening ofNAFTA rulesoforigin and
thegrowing gapbetween NAFTA andm.f.n. tariffs.
Therepresentative ofCanada responded thattheGATT, andnowtheWTO, wasthe"bedrock"
ofhiscountry 'strade policy, andtheframework forCanada 'sother bilateral orregional initiatives.
Although Canada wasobliged toplace emphasis onmanaging itsrelationship withitslargest trade
partner, andimplement theNAFTA, itcontinued towork forthecomplementarity ofregional and
multilateral rules. Inthisconnection, heclarified thedistinctions between WTO andNAFTA dispute
settlement provisions, which haddiffering objectives andprocedures.
Trade andinvestment policies
Members welcomed thecontinued reductions intariffs under theNAFTA andWTO agreements
andthefurther autonomous cutsbeing made inm.f.n. andpreferential rates. Average m.f.n. tariffs
onmanufactures were low; however, there were stillsignificant peaks intextiles andclothing. By
contrast, out-of-quota tariffs inagriculture were often prohibitive. Some Members called attention
tothe"graduation" proposals forCanada 'sGPT.
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Members recognized thatnewanti-dumping initiations byCanada haddeclined inthelasttwo
years, continuing atrend established inthemid-1980s, andsought information regarding thecurrent
review ofCanada 'sSpecial Import Measures Act. However, theynoted thathighduties hadbeen
imposed incertain cases andthatsome measures hadpersisted overlongperiods oftimeinareas where
fewimports hadoccurred.
Several Members asked when Canada intended toinclude sub-federal entities initscoverage
undertheGovernmentProcurementAgreement.Questionswerealsoraisedaboutbuy-Canadaprovisions
atthesub-federal level, andonset-aside programmes.
Membersnotedthatconditionsforforeigninvestorsweresteadilyimprovingthroughtheremoval
ofownership restrictions infinancial services atthefederal level, andtheapplication oflower investment
review thresholds forWTO Members, inparallel tothose applied under NAFTA. While access for
investment inmanufacturing wasrecognized asgenerally free,concern wasexpressed about remaining
restrictions insome services sectors atthefederal andprovincial levels.
Some Members called forstricter application byCanada ofintellectual property rights,
particularly inthefields ofcopyright protection andgeographical indications forwines andspirits.
Several Members asked forclarification ofCanada 'sexport promotion initiatives, inparticular
theExport Development Corporation, Canada 'snewInternational Business Strategy, andprovincial
incentives.
Inreturn, therepresentative ofCanada stressed thatCanada 'sperformance inthetariff area
wasbetter thanindicated intheTPRReport; across allimports, thetrade-weighted applied tariff
averaged only1.6percent. Referring tothegapbetween m.f.n. andpreferential rates, henoted that
movement towards global freetradewould reduce suchgaps; Canada remained ready tosupport further
multilateral tariff liberalization. Theongoing three-year tariff review wasintended tomake thetariff
system simpler, more transparent andpredictable, andtoreduce regulatory costs. Consultations with
thebusiness sector wereunderway withaviewtointroducing anewcustoms tariffon1January 1998.
Canada wasalsoreducing itstariff ontextile andclothing items; unilateral cutsmade prior tothe
conclusion oftheUruguay Round werecovered bytheUruguay Round reduction commitments and
would narrow thegapvis-à-vis NAFTA rates. There werenoplans tointroduce a"graduation" element
intoCanada 'sGPTscheme.
Therecent decline inanti-dumping initiations wasattributable tomore favourable economic
conditions andstrengthened competitiveness. Canada 'sview wasthatinafree-trade environment
domesticcompetitionlawscouldreplaceanti-dumpingprovisions;anti-dumpingprocedureshadtherefore
beeneliminatedunderthebilateralagreementwithChile,andCanadacontinuedtopushfortheirabolition
intheNAFTA context. Therepresentative stressed thatunder Canada 'sprospective dutyenforcement
system, goods priced above theirnormal values didnotincur anti-dumping duties. Canada hadlong
hada"sunset" clause providing forregular reviews ofmeasures inforce.
Intheprocurement area, Canada hadundertaken in1994 toprovide afinallistofprovincial
entities tobeincluded intheWTO Agreement, onthebasisofcommitments obtained fromprovincial
governments. InOctober 1995, referring toaccess limitations toimportant markets, primarily the
United States, Canada hadmade thisinclusion subject toreciprocal offers onsectors ofpriority interest
aswellastotheintroduction oflimits ontheuseofsmall business andother set-asides soastoprovide
anacceptable security ofaccess. Should circumstances change, theCanadian provinces wereprepared
toproceed withoffers. Additional information would begiven inreply toquestions.
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Therepresentative stressed theopenness oftheCanadian investment scheme. Companies might
incorporate atthefederal, provincial orterritorial levels ortheymight operate byregistering inthe
province ofoperation asforeign corporations. Thequestion of"sensitive" sectors needed further
multilateral consideration.
Sectoral issues
Members recognized thatCanada hadtaken several initiatives aimed atrevitalizing theeconomy
byreducing State involvement. Public expenditure onagriculture hadbeenreduced by20percent,
dueessentially totheelimination ofgrain transport subsidies. However, supply management regimes
fordairy, poultry andeggproducts retained various restrictions onforeign access. Members expressed
concerns about highimport barriers onthese products, nowintheform ofrestrictive tariff quotas,
andquestioned thesystem ofquota allocation, which relied ontraditional importers andleftlimited
scope forimprovement inmarket access. Concerns regarding specific products suchascheese orwheat
were raised. Members sought clarification from Canada onfuture steps towards liberalization in
agriculture.
Members recognized therapid growth oftheenergy sector inrecent years, buthighlighted
thecontrast between theperformance ofthelargely deregulated oilandgasindustry andtheelectricity
sector which remained impeded bythepersistence ofinterprovincial barriers totrade.
Members recognized thattherecent strong performance ofmanufacturing exports hadbenefited
fromgreater economic integration withtheUnited States. Several Members questioned Canada 'shigh
m.f.n. tariffs intextiles andclothing; while recognizing thatCanada wasoneofthefewimporting
countries thathadintegrated under theWTO Agreement onTextiles andClothing (ATC) anyitems
previously subject toquantitative restrictions, theynoted thelimited impact ofsuchaninitiative. They
hoped thatmore items willbeintegrated under thesecond andthirdphase oftheAgreement. Some
Members expressed concern about possible trade diversion inthissector resulting fromstricter rules
oforigin under theNAFTA andthewidening tariff gapvis-à-vis m.f.n. rates, despite certain
compensatory quotas fornon-originating products. Inthemotor vehicles industry, Members stressed
Canada 'sattractiveness asanassembly andpartproduction location. Some Members appreciated the
elimination ofm.f.n. tariffs onautopartimports, butnoted significant differences between Auto-Pact
andnonAuto-Pact Members fortariffs onassembled cars. They regretted thattheCanada-U.S. Free-
Trade Agreement didnotallow companies from non-member States tojointheAuto-Pact.
Members alsonoted that,duetotherapid expansion ofCanada 'smodern, technology-based
industries,thestructureofproductionandtradehadgraduallyshiftedfromresource-basedto"knowledge-
based" industries. Withafewexceptions, advanced-technology activities wereconcentrated inCanadian
subsidiaries ofmultinational enterprises, surrounded byanetwork ofsmaller, innovative domestic firms.
However, some Members noted that,overall, research anddevelopment spending inCanada remained
lowbyOECD standards.
Finally, Members showed theirappreciation forrecent deregulation insome ofthelargest,
andpreviously mostprotected, services sectors oftheCanadian economy. Theynoted thatcompetition
hadbeenintroduced intolargesegments ofthefinancial services, telecommunication andairtransport
industry andthat,since reforms hadbeenaccompanied bynewinternational commitments, foreign
suppliers hadgenerally benefited. However, several Members pointed toremaining restrictions on
foreign investment inareassuchastelecommunications andtransport andencouraged Canada toremove
these inthecontext ofGATS negotiations. Some Members feltthatmarket access inbanking was
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stillseverely restricted bytheimpossibility tobranch directly intoCanada from thehome country.
Other Members questioned "routing" obligations applying tointernational telecommunications services.
Therepresentative ofCanada responded thatCanada 'scurrent tariff quota system reflected
itsUruguay Round concessions onagriculture. Withregard tofurther WTO discussions onagriculture,
hesaidthatCanada fullysupported aprogramme ofanalysis andinformation exchange within theWTO
onagricultural trade-policy matters, notlimited tomarket-access questions, withaviewtopreparing
fortheeventual resumption ofnegotiations foreseen intheAgreement onAgriculture.
Therepresentative stated thatCanada hadfullyimplemented itscommitments inthefirstphase
ofintegration under theAgreement onTextiles andClothing and,despite adifficult adjustment process,
wastheonlyWTO Member toinclude arestrained product initslist.TheGovernment ofCanada
hadbeenconsulting withstakeholders concerning Canada 'snotification ofproducts tobeintegrated
inthesecond phase oftheATC, which would benotified totheWTO bytheendof1996.
Therepresentative ofCanada recalled thatCanada hadlongpursued liberalization infinancial
services, transportation andtelecommunication services. Hementioned inparticular Canada 's
commitments toremove the10/25 investment limitinfederally incorporated financial institutions under
theGATS, except forschedule Ibanks forwhich the10percentlimitremained. TheGovernment
ofCanada hadnoplans torevise thislatter provision. HesaidthattheGovernment wascarefully
considering theimplications oftworecent Parliamentary Committees 'recommendations toallow direct
branching fromabroad. Canada hadalsooffered tobinditscurrent policies regarding foreign investment
andtraffic routing intheongoing WTO negotiations, butwasreviewing itsapproach tosuchnegotiations
tohelpachieve anacceptable mutual agreement bythedeadline ofFebruary 1997.
***************
Members fullyacknowledged theexport-driven growth intheCanadian economy overthepast
twoyears, theliberalization incertain sectors andthevarious initiatives toreview andupdate trade
policy mechanisms. However, anumber ofconcerns thathadbeenexpressed atearlier reviews remain.
These include continuing highlevels ofprotection intheagricultural sector, thelarge number of
anti-dumping measures stillinforce, andtheproblems ofensuring thatpolicies shaped atfederal level
werefullycarried through atsub-federal level. Other issues thatreceived emphasis wereremaining
restrictions intheservices sector andthemanner ofimplementation oftheAgreement onTextiles and
Clothing.
Developments inrelation toNAFTA wereofparticular interest toMembers, bothinthewider
context ofinteraction between regional andmultilateral arrangements andalsointerms ofCanada 's
heavy dependence ontheU.S. market. Members thusencouraged Canada tomaintain itsstrong
commitment tomultilateralism andtocontinue togiveclose attention toensuring complementarity
between regional andmultilateral initiatives.
END