FAIT Committee Report

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ONGOING MARKET ACCESS ISSUES

"What Canadians are Saying"

...Canada has become one of the biggest users of antidumping and countervailing measures. Antidumping trade restrictions are extremely costly and have no economic basis...Canada should push for the end to this form of protectionism. And Canada must lead by example.

Looking at the agreement on subsidies and countervailing duties that resulted from the Uruguay Round, Canada should concentrate its efforts within the WTO on improving and clarifying existing provisions regarding the definition of the subsidy concept and the conditions for imposing trade sanctions. To be countervailable or subject to trade sanctions, a subsidy must be specific. That is, it must be limited to certain enterprises or industries within the jurisdiction of the granting authority. This is particularly important, because we should be seeing it as being against the territory of a whole country.

We fully support the government in its efforts to defend the TPC against the retaliatory complaint. If Canada's appeal of the current WTO decision is rejected and changes have to be made to the TPC program, the environment industry must be fully consulted prior to a final decision on any changes. Environmental technology companies from other countries have access to a much wider and more generous range of government support than Canadian environmental companies. Our one major national program, TPC, must not be diminished by international pressure. We would further urge that our government review and seek to match the advantages that governments in other countries provide to their environmental technology and service providers.

...the antidumping rules and the competition provisions adopted by national legislative assemblies on unfair pricing practices are all pursuing a common objective, namely, maintaining the conditions for fair competition. This leads us to question the logic and pertinence of pursuing a public policy of maintaining two distinct legal systems, one which applies to foreign producers and which is based on the administration of anti-dumping duties, the other which polices the operators in the domestic market and which is designed to prevent predatory pricing policies.

I feel that this dual system is artificial; I find it difficult to explain the logic behind it. Consequently, during the next round of WTO negotiations, I think that Canada should, on the one hand, make an effort to promote the convergence of the anti-dumping system and, on the other hand, advocate competition rules with respect to unreasonably low pricing practices.

Over a decade ago, members of Parliament identified the serious problems that would be created by an asymmetrical international trade policy that attempted to maintain market access barriers for dairy and poultry supply-managed commodities while at the same time adopting free trade for downstream food processors such as McCain Foods. This somewhat lopsided trade policy has created a competitive disadvantage for Canadian food processors because you must compete against foreign processors that enjoy significant advantages due to their lower dairy and poultry input costs.

...in a general sense there's always a tendency to include fish with agriculture and food, and that presents tremendous challenges for us in terms of how trade issues are debated and discussed. There's a very different environment in the seafood industry...Fish is almost exclusively an export product.

[U]npredictable, hard to manage, and costly disruptions to the supply chain are damaging to an industry's future and to the future of those who depend upon it. That is precisely the situation we face today under the Canada-United States Softwood Lumber Agreement. The industry that has been the number one contributor to our balance of trade is now constantly subject to threats, countervail trade actions and a general atmosphere of protectionist harassment. Under the agreement, production, shipments and inventories must be managed to annual and quarterly quotas with consequences for both stability of supply and price. Worse still, the quota restrictions under the softwood lumber agreement do not apply to all producing regions of Canada. Nor do they apply to lumber exports from other countries into the U.S. market.

In Asia tariffs and other important import restrictions still play a prominent role in inhibiting the expansion of trade in forest products. The Asian market for forest products is significant as the recent down turn in the Asian demand for forest products and the effect that it has on sales from Alberta and Canada has demonstrated. Canadian spruce pine fir lumber still has 4.8% tariff when it enter Japan. This places Canadian lumber exporters at a disadvantage compared to the Japanese industry who in many cases currently, and continue to import raw spruce logs which are duty free. Spruce logs when manufactured into lumber are a direct competition to the spruce pine fir lumber that we export to Japan.

As you look at trade policy and the effect that is has on the Canadian I think the auto industry provides a very positive example, not without areas of concern, but an area in which Canada and the United States in particular have been able through trade policy to do a tremendous amount of good for the industries that have employed literally thousands of our workers on both sides of the border.

The Canadian wine industry is seeking unfettered access to the European Union for Canadian wines made entirely from grapes grown in Canada. This is the treatment all EU wines receive in Canada without a wine agreement. The reverse is not true for Canadian wines going to the EU.

Senior levels of government should consider the fact that local government is not exempt from the cost of red tape created by these international trade and investment agreements...The legal department of the District of Squamish is focused on dealing with zoning problems, not on the fine points of international treaties....Will time and resources be provided? Will municipalities be given copies of the draft texts of international agreements with adequate time to review them before the federal government takes action on them?

The WTO Working Group on the Agreement on Government Procurement is considering the right to foreign suppliers to have equal rights to bid on contracts for sub-central governments. What would this mean to a hospital or for a health board? What about the impact of that on our communities? The only question our government is asking is through a market-access study about how Canadian exporters might benefit. But what about the benefits to the public?

We have serious concerns whether the trade-oriented staff in the Department of Foreign Affairs fully appreciate the consequences for those so-called `sub-central governments' (i.e., provincial and local governments) that would have to harmonize their procurement practices to meet the international standards that are currently only required to be followed by the federal government as a signatory to the AGP. The price for meeting federal trade objectives will be paid by provincial and local governments across the country, without the certainty of receiving any of the benefits of increased trade. Our organization feels that these kinds of [government procurement] requirements would be excessively onerous for local governments across the country to meet. We are recommending to the Federation of Canadian Municipalities to advocate that participation by other levels of government in a revised AGP should be a provincial option, with each province seeking the formal concurrence of its local government organizations, prior to agreeing to be bound by the WTO rules for government procurement.

Ongoing Market Access Issues

In this Chapter, the Committee examines market access issues as they relate to merchandise trade other than agricultural goods, which were dealt with in the previous chapter. Traditionally, GATT negotiations were concerned only with impediments to goods trade. Over the years, the result has been a substantial lowering of tariffs and non-tariff barriers affecting the flow of product between countries. Canada has always been a strong supporter of the GATT/WTO primarily because it facilitated access to the world's major markets for Canadian producers, assured Canadian exporters' through a system of multilateral rules' that they would not face discriminatory practices in foreign markets, and promoted increased competitiveness and productivity in the domestic market through lower cost inputs for manufacturers and producers and greater consumer choice. Freer trade policies have been continued in the FTA and NAFTA and in new trade initiatives such as FTAA, APEC, negotiations with EFTA, and through various WTO sectoral agreements.

Market access will be a major issue to be addressed in the forthcoming round of WTO negotiations. The traditional meaning of market access ¯ for example, issues relating to tariffs for industrial and agricultural products, as well as to non-tariff barriers such as standards and technical barriers to trade, customs valuation, antidumping and countervailing duties, safeguard actions, rules of origin, and import licensing, have changed considerably as a result of globalization. Market access is being considered now increasingly as the condition governing both access and presence for goods, services, investments, ideas, and business people. With enhanced globalization, the activities of the private sector are less likely to be constrained by national boundaries, information/ communications and computer advances are being rapidly disseminated world-wide, and improved modes of transportation continue to reduce distances and border obstacles to the movement of goods. All forecasts suggest that the trend toward greater economic interdependence will continue and that the linking of production, technology and marketing along value added chains will heighten competition for both input and final goods throughout the world. An important characteristic of the new global trading environment is the potential for conflict between policy fields. Thus, the domestic framework of structural and sectoral policies must complement trade policy objectives.

While the traditional market access issues dealing with the treatment of goods at the border may not have the same appeal or intellectual attractiveness associated with some of the newer trade related issues (investment, competition policy), they nonetheless are basic to Canada's current trade policy, and are fundamental to, and continue to be important for the effective functioning of the world trading system. Merchandise market access issues cover a very wide range of subject matter most of which has been the object in one form or another of previous negotiations. For Canada, the WTO Agreements represents our primary trade agreement with the rest of the world. The Uruguay Round was one of a number of important initiatives taken by Canada in recent years to improve foreign market access for Canadian goods. The rules applied by our trading partners at their borders continue to be important for the multilateral trading system. The Free Trade Agreement with the United States, NAFTA, the free trade agreements signed between Canada and Chile and Israel, and the current discussions taking place in APEC, FTAA, EFTA are all directed to improving the position of Canada in the global marketplace.

While much of the discussion relating to the forthcoming round has been about implementation issues and the new issues, tariffs continue to be seen as an important element of the multilateral trading scene. A number of complex tariff issues will be on the table for negotiation in the forthcoming WTO round such as the basic approach to be used for possible tariff reductions, how to deal with tariff peaks, bindings, preferences for developed and the least developed countries, regional preferences, and better security of market access generally. In this connection, it is relevant to note that tariff reductions offered by Canada, the United States, and Mexico (and Chile and Israel) in the WTO context will have the effect of reducing the tariff preferences enjoyed in each others markets which were obtained through NAFTA and the other bilateral free trade arrangements. As far as non-tariff barriers are concerned, all of the WTO Agreements relating to these goods issues will be on the table. The objective with respect to these will be to identify areas where the present rules are lacking, develop understandings as to how they might be improved, and seek to bring about better rules and commitments to enhance and govern trade between WTO members.

The following sections of this Chapter will review the tariff and non-tariff agreements now in place, their coverage, and unresolved issues and the possibilities for new negotiations in the next WTO round. It is important to note that any of these agreements or certain aspects of them may be identified by member countries for possible inclusion on the agenda for the forthcoming round. It is also significant to note that the Committee was struck by the very few submissions it received from Canadians that identified specific tariff or non-tariff barriers that they wished to see eliminated by other countries or retained by Canada. To some extent this is probably due to the fact that the major tariff and non-tariff barriers that impact on Canadian producers have been dealt with through NAFTA. In fact, however, many of the bilateral issues that arise between NAFTA partners may have their solutions within a broader WTO context. The Government has requested direct input from interested parties in this area and we can only stress the importance of private sector involvement in a timely fashion so that our negotiators are prepared to advance positions and respond to requests received from other countries throughout the WTO negotiation.

Tariffs

Tariffs will be a significant element in the negotiations as member countries seek to further reduce their impact on trade flows. In this connection, the domestic process involves Canadians identifying which tariffs and non-tariff barriers in foreign countries are impeding current or future access to those markets for our goods. The process also requires an examination of Canada's tariffs and other border measures that might be reduced or removed: to first, pay for concessions obtained from our trading partners and second, reduce the cost of imports for both Canadian consumers and domestic firms that use them as inputs in their production.

It is important to situate the tariff within the context of the international trading system. Originally, the tariff was established in most countries as a mechanism for governments to raise funds. Little attention was given to their possible adverse effects on economic growth or competitiveness. While the policy makers were aware of the protective effect of the tariff, policy was directed primarily to ensuring that Canada produced as much as possible of what we consumed, exported as much as we could to other countries, and imported only essential goods that had to be obtained from abroad. All countries more or less behaved in much the same manner. Indeed, similar arguments are heard today from certain industrial sectors, especially in the United States, in spite of the wealth of evidence attesting to the economic benefits that flow from freer trade.

The GATT was created to try to bring some order to the international trading system. It was originally negotiated between 23 countries and, as might be expected, was not comprehensive in its coverage, nor did it anticipate globalization or many of the developments in world trading arrangements evident today. As conceived initially, it focussed only on trade in goods. Its original Articles, and the early negotiating conferences, reflect that preoccupation as they were concerned mainly with reducing and removing tariffs.

The original tariff item-by-tariff item negotiations were laborious and slow. They were based primarily on what was referred to as the "request and offer approach" in which each country would table its request lists of tariff reductions that it wished to obtain from other countries and the other countries would, in turn, put forward their offer list in response to the requests that they had received. In the 1960s, efforts were made to find a more efficient and effective process. This resulted in the "formula" or "across the board" approach in which countries agreed to a general reduction objective and negotiated exemptions from this goal. This, combined with the advent of the computer, facilitated tariff negotiations in the Kennedy and Tokyo Rounds. The Uruguay Round was a mixture of the two, since the U.S. rejected the formula approach.

Tariff negotiations do not, for the most part, involve representatives from a whole group of countries sitting down at a table and negotiating tariff reductions together; rather they involve a series of bilateral negotiations, the results of which are made available to all WTO members via the Most Favoured Nation (MFN) principle. As a result, the WTO system enables smaller countries to escape the need to balance trade bilaterally and increases their negotiating leverage by joining forces with like-minded countries to achieve specific objectives.

Leverage in the system was, and still remains to a considerable extent, a function of the economic power of individual WTO members. This is due to the fact that the system's ultimate sanction is the ability of a state to withhold foreign access to its market. Likewise, a willingness to open one's domestic market is the negotiating coin used to obtain trade concessions from others. In such negotiations, small countries individually are at a disadvantage in relation to the large powers. They do, however, thanks to the MFN rule, receive the benefits of concessions negotiated between the larger powers - benefits which they would otherwise be unable to afford or achieve.

It is anticipated that smaller countries, especially the developing countries, will play a much larger role in the forthcoming WTO negotiation than they did in the past. One of the most important accomplishments of the Uruguay Round was its acceptance by all member countries as a single undertaking so that all members automatically participate in all of the multilateral agreements and are bound by their legal frameworks. This alone is a major step in reducing uncertainty for business in the conduct of international trade. There can be little doubt however, that the developing countries will use their enhanced status within the WTO to focus their efforts in these negotiations on removing obstacles to trade in those sensitive sectors, textiles and clothing for example, where they have a comparative advantage. Moreover, they will be seeking removal of the remaining tariffs against their products that they ship to developed countries. As active and full participants in the negotiation process, they will be looking for significant overall benefits in terms of better access to developed country markets for all of their exports, and support from the developing world may be crucial to achieving overall agreement at the end of the day.

The Uruguay Round was by far the most comprehensive and difficult negotiation ever undertaken in the GATT. It resulted in the largest reduction in tariffs on industrial and resource products ever achieved in a negotiation (close to 40%), in new approaches to tariff reductions and their elimination such as in the telecommunications sector, in the integration of regional trade arrangements, and in non-tariff barriers being reduced or eliminated across the entire spectrum of trade in goods. The Uruguay Round Agreement on Agriculture brought this sector more fully under the rules of the GATT by reducing overall tariffs on agricultural goods by 36%, by ensuring that member countries opened their markets to imports, by reducing internal supports to their agricultural industries, and by reducing export subsidy expenditures in order to reduce the volume of subsidized exports.

A significant feature of the market access deal was agreement by the world's key trading countries to completely eliminate tariff barriers in industrial sectors covering paper (from pulp of all forms of paper articles), steel, pharmaceuticals including finished medications of all forms, construction equipment, agricultural equipment, medical equipment, office furniture, toys, and whiskies, brandies and beer. Concessions were also made in other areas. In electronics, the result was reductions in excess of 50% in some markets and agreement was reached on harmonizing tariff levels for chemicals and plastics. For most products covered by the negotiation, the reductions were to be implemented within a five-to-ten-year time frame.

Specifically, the Uruguay Round was the largest market access package ever agreed, and it was only concluded after seven years of negotiations among 117 countries. Overall, the WTO estimated that the Round resulted in higher levels of tariff bindings on industrial products from 78% to 99% in developed countries and from 22% to 72% in developing countries; coverage of most agricultural products because of tariffication and bindings; a 38% overall reduction in developed countries tariffs on industrial products from 6.3% to 3.9%; an increase from 20% to 43% in the value of imported industrial products that receive duty free treatment in developed countries; and considerable progress in reducing tariff escalation.

Since the conclusion of the Uruguay Round there have been new agreements on tariffs relating to sectors such as basic telecommunications equipment, and tariffs were an integral part of the new agreements signed between Canada and Chile and Israel. Moreover, the APEC countries are pushing for tariff-free trade between them by 2010-2020; the Free Trade Agreement of the Americas (FTAA) has tariff-free trade as an objective for the year 2005 and Mercosur in Latin America is building momentum to expand its sphere of tariff-free trade. On the domestic front, a major effort was undertaken last year by the Department of Finance to simplify the Canadian tariff structure by drastically reducing the number of tariff items as a means of facilitating the import process for Canadian business. In this regard, a key function in the process of tariff negotiations is to ensure that appropriate domestic sectoral policies are in place and that their objectives are reflected in Canada's strategic approach in multilateral and regional tariff discussions.

Accordingly, tariffs are still regarded by many as being very important within the overall scheme of the multilateral trading system and it can be expected that they will attract considerable attention from our trading partners in the upcoming round. Most spokespersons who addressed this issue before the Committee, especially from the agriculture sector, strongly recommended that Canada give top priority in the negotiations to improved access and tariff removal in foreign markets for Canadian products. In the Committee roundtable on March 11, 1999, William Miner, referring to the oilseeds sector, noted that zero-for-zero treatment is being promoted as a goal. He urged Canada to pursue the same objective in the cereals and red meat sectors. One of the reasons behind Canada's strong trade performance is the tariff liberalization that resulted from WTO Agreements and NAFTA, which leveled the playing field and opened new markets for Canadian firms. While our current focus may be directed primarily to the American market, Canada does have a vital stake in other world markets, especially the European Union and Japan, which must be protected. Barrier free access to these markets must be a clear objective for the next WTO round. As such, Canada's negotiators will need to be in a position to identify with some precision where Canadian industry wishes to seek improvements and what we might be willing to give up to pay for them.

Non-Tariff Barriers

Market access negotiations related to trade in industrial goods including fish, at the multilateral level, will deal with non-tariff measures (NTMs) as well as tariffs. In the context of WTO industrial goods market access negotiations, non-tariff measures generally refer to policies that restrict or prohibit imports (including through quantitative restrictions, tariff quotas, and import licenses); impose variable levies, surcharges or discriminatory taxes on imports; require prior import deposits; subsidize production and exports; and/or restrain exports. There is a variety of specific NTMs within each of these broad categories. A non-tariff measure can be applied in tandem with tariffs and/or other NTMs.

It is not always easy to identify NTMs or be certain of their purpose. It is generally agreed, however, that NTMs can have many different effects (including price, quantity, and social welfare impacts) in both the importing and exporting country. NTMs can impair or nullify the effect of agreements to make binding commitments to reduce or eliminate tariffs. That said, these impacts can be difficult to quantify, even in situations where the measures are transparent. NTMs have a major impact on trade, and in overall terms, the economic gains from their liberalization may far exceed those from reducing or eliminating remaining tariffs - particularly as trade negotiations increasingly broach areas that have traditionally been viewed as being in the purview of domestic policy. Canadian market access objectives for any future non-tariff negotiations will need to be based on as accurate information as possible on non-tariff measures that limit access for Canadian products and the potential advantages and disadvantages likely to flow from their reduction and/or elimination. The Uruguay Round did not, and could not, resolve all the problems in this area and internationally recognized disciplines are essential to ensure that current and potential NTMs are contained.

Import Restraints

The approach adopted for dealing with NTMs in the Uruguay Round was to identify barriers and bring them into the scope of multilateral negotiations, strengthen the rules governing their use, develop surveillance mechanisms to enforce compliance, and offer improved dispute settlement procedures. One result was the conversion of many NTMs in agriculture to tariffs (a process known as tariffication), and some agricultural NTMs were also eliminated. In most cases, the tariffication process involved the introduction of tariff rate quotas (TRQs) which provide for imports up to specified access levels to be assessed with one rate of import duty. Imports above that level are charged a higher, more restrictive duty. NTMs that were specifically covered in the WTO Agreement on Agriculture include quantitative restrictions, variable import levies, minimum import prices, discretionary licensing, non-tariff measures maintained through state-trading enterprises, and voluntary export restraints (VERs). The Agreement on Agriculture also improved the transparency of rules in this sector.

Import restraints on exports of textiles and clothing are now being progressively phased out under the WTO Agreement on Textiles and Clothing. Subject to special safeguards, the phase-out of the Multi-Fibre Arrangement (MFA), and the gradual integration of the textiles and clothing sector into the normal WTO rules, is being done over a 10-year period under the supervision of a Textiles Monitoring Board (TMB). It is likely that the developing countries will wish to revisit this Agreement as part of the agenda for the new round.

Uruguay Round Agreements

Other areas specifically addressed by the market access negotiations in the Uruguay Round that will be subject to review in a new round include: safeguards, anti-dumping practices and subsidies and countervailing measures; technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) measures; import licensing; customs valuation; preshipment inspection, rules of origin and government procurement. Short summaries of each of these agreements are attached as an Appendix to this Chapter.

Subsidies and Countervailing Measures

Disciplines on the use of subsidies are covered by the WTO Agreements on Subsidies and Countervailing Measures and on Agriculture. These rules distinguish between domestic and export subsidies and provide for differential treatment for agriculture. Some subsidies are prohibited (such as export subsidies, with the exception of the case of agriculture), while others are "actionable" or "non-actionable". The use of subsidies that affect trade, especially in agriculture, will clearly be on the table for discussion in the new round, as will the special rules that apply to "non-actionable" subsidies. The Alberta Forest Products Association recommended that Canada give priority to pursuing clearer definitions of which subsidies are countervailable and which are not, to ensure that the U.S. lives up to its obligations under the agreements.

Safeguards

Safeguards are temporary trade measures applied by a Government on an emergency basis against increased imports of a particular good that is causing, or threatening to cause, serious injury to its domestic industry producing like or directly competitive products. Safeguard actions must comply with the requirements of Article XIX of the GATT 1994 and the Agreement on Safeguards. Canada and the United States agreed in Free Trade Agreement (FTA) to exclude each other from global safeguard actions under GATT Article XIX unless imports from the other Party were "substantial" and "contributing importantly" to the serious injury or threat thereof caused by increased imports. This FTA standard was essentially carried over into the NAFTA.

The Committee was informed that WTO safeguard actions have so far had little impact on Canadian exports. Canada did, however, intervene in the U.S. International Trade Commission's recent safeguard investigation in respect of wheat gluten and the Australian Productivity Commission's investigation in respect of pigmeat, neither of which resulted in the application of safeguard measures against imports from Canada. Canada has not taken any safeguard measures since the WTO Agreement came into effect. It is expected that the implementation of this Agreement will be subjected to examination in the course of the forthcoming round and that incremental changes to further strengthen or clarify its application will likely be brought forward for consideration. The Committee was informed that the Government is closely monitoring current safeguard disputes.

The Anti-Dumping Agreement

The Anti-dumping Agreement is by far the most used of the three WTO trade remedy agreements. The Agreement provides an exception to the WTO basic principles by allowing member countries to impose anti-dumping duties against imports from specific countries when goods are dumped (sold to an importer at a price less than they are sold in the exporter's home market) and are causing injury to the domestic producers in the importing country. The Agreement was examined in the Uruguay Round and some relatively minor improvements in the rules were agreed. The Agreement will almost certainly be reviewed again in a new round since a number of issues, mainly concerned with interpretation, must be examined. These include sampling methods, content of preliminary determinations, treatment of confidential information, disclosure, hearings, and circumvention. There is also growing concern being expressed about the increased use of anti-dumping measures generally, and especially as a possible mechanism for providing new protection.

Technical Standards and Phytosanitary Measures

The Technical Barriers to Trade Agreement (TBT) and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) are closely related, with the latter focusing on measures designed to protect human, animal, and plant life as provided for in Article XX of the GATT. The TBT Agreement concerns the development and application of standards that affect trade. Under both Agreements, regulations can impact both domestic and international trade. The TBT recognizes the right of countries to establish their own standards, but requires that members not apply their national standards more rigorously to imported products than to domestic products. The SPS differs from the TBT to the extent that the MFN principle does not apply but requires that measures not be applied in a way to create arbitrary or unjustifiable discrimination between countries where identical or similar conditions prevail. Further, the SPS incorporates a primary obligation to the effect that measures be based on scientific principles.

As noted in Chapters 3 and 4, over the past few years a number of issues such as the use of hormones in meats, genetically modified organisms, and the requirements relating to the use of scientific data under the SPS Agreement have been subjected to a number of criticisms. The Canadian Federation of Agriculture recommended that Canada work to eliminate unjustified SPS and other non-tariff measures including clear-cut agreements on inspection standards and the prevention of sudden standards changes. The Canadian Pork Council requested that Canada work for transparent and predictable procedures so that countries cannot use unjustified SPS barriers to limit imports. This view was echoed by William Miner, who stated that the rules relating to health, sanitary, environmental, and technical standards should be clarified to avoid their use as effective trade restrictions. International discussions will also likely be required to develop acceptable systems of mutual recognition on standards as between countries. In the circumstances, it is expected that both of these Agreements will be subject to a detailed review in the new round.

Border Measures Agreements

It is unlikely that the Customs Valuation Agreement NBP¹ or the Preshipment Inspection Agreement will attract much attention in the forthcoming round, although issues concerning technical co-operation to assist developing countries with their implementation may arise. The current WTO Agreement on Rules of Origin only deals with non-preferential rules. Future negotiations could include a discussion of preferential rules and give effect to the work taking place in this area in the Customs Cooperation Council. Tariff classification issues are not usually a subject for multilateral negotiations. However, given that tariff classification can make a major difference to the rate of duty applied, and given recent experience on this front, especially in respect of the treatment of Canadian lumber and wood products entering the U.S. market, consideration might be given to exploring new ways of dealing with these problems.

A number of other charges may also be applied to imports. Some of these reflect fees for services rendered (stevedoring and port handling charges, for example). Additional charges may also include customs processing fees and consular charges. WTO rules (GATT Article VIII: Fees and Formalities connected with Importation and Exportation) allow the imposition of some of these charges provided they are "limited in amount to the approximate cost of services rendered and shall not represent indirect protection to domestic producers or a taxation on imports for fiscal purposes." Despite a WTO Dispute Settlement Panel ruling against a U.S. practice of charging ad valorem fees, some countries continue to set some charges as a percentage of the value of imports, in contravention of WTO rules.

The WTO Agreement on Import Licensing Procedures sets out the conditions under which import licensing may be implemented and stipulates the procedures which should be followed if, and, or when applied. When licence requirements are applied on a discretionary basis the result can be increased costs and uncertainty for traders. This problem can be exacerbated by a lack of transparency, which facilitates the subjective application of administrative procedures.

Government Procurement Agreement

A review of the operation of the Government Procurement Agreement is underway with a target date for completion of October 1999 and obviously it will be dealt with in the context of the new round. Historically, most governments placed procurement contracts with their domestic industry. Procurement was not viewed as a major issue on the international trade agenda until the late 1970s. During the Tokyo Round, the first steps were taken and resulted in the GATT Procurement Code. The Code was separate from the GATT and had limited coverage and membership, mostly developed countries. During the Uruguay Round, a new WTO Agreement on Government Procurement (AGP) was reached and came into force on January 1, 1996. Like the previous Code, participation in the AGP is optional and so far limited. Canada has been a leader in international procurement negotiations and is an active member of the new AGP.

The AGP identifies specific public entities covered and establishes financial thresholds applicable to contracts for products, services, and construction services e.g. purchases of goods and services over SDR 130,000 ($254,100.00) by national government departments and agencies, and purchases of construction services over SDR 5 million ($9.7 million). Generally, Canada's support for negotiations in this field has been based on the view that we have much more to gain from access to the very large government procurement markets of the major trading nations such as the United States or the European Union, than we might have to give up in our own domestic market. This Agreement provides access opportunities for Canadian exporters and service providers to bid on contracts, estimated to be in excess of $250 billion per annum, with governments in major international markets.

Because membership in this Agreement is limited (26 of 134 Members of WTO) at the present time, its expansion in both membership and product coverage may provide one of the major areas in which better access to foreign markets can be achieved for Canadian suppliers. The main issue will be how far developing countries are prepared to go in this area. Many of the non-AGP participants (most developing country members for example) regard their domestic procurement markets as crucial to local economic development. Indeed, many of these countries fear that open competition from world suppliers would undermine the ability of their relatively small domestic industries to supply even the limited market they now serve. Perhaps more important from the perspective of these countries is the fact that they do not see themselves now or in the foreseeable future as being in a position to supply product in any substantial amounts to foreign governments. Thus, they see little benefit in becoming signatories. Canadian industry should make every effort to identify potential markets that might be tapped under an expanded procurement agreement.

At the same time, the Government must also be sensitive to the concerns that were expressed to the Committee about the potential impact of procurement liberalization negotiations on sectors within Canada, particularly in certain core areas of public services delivery-notably health and education-which have been vulnerable to privatization and funding cutbacks in recent years, and which also fall within provincial and local government jurisdiction. In addition to identifying Canadian export opportunities into other markets, it will be equally important to ensure that a balanced result is achieved which continues to protect the Canadian public interest in health, education, and social-sector services.

The extension of AGP coverage to sub-federal governments in federal states clearly enters terrain in which the Government will have to tread carefully in closer consultation with provincial and municipal authorities. All AGP member countries other than Canada have made commitments to open their markets to suppliers from other countries for certain procurements of federal government departments, sub-central (provincial, state, municipal) government departments, and Crown corporations. In the Uruguay Round, the Canadian Government offered to cover sub-federal government entities and enterprises in all ten provinces on the basis of commitments received from the provinces. This position was also linked to achieving increased market access in sectors of principal interest to Canadian suppliers, and improved security of market access through circumscribing the use of small business and other set-aside exceptions in the Agreement, especially in the United States.

Because of U.S. reluctance to agree to the latter and as no commitments have been received from the provinces, Canada has limited its coverage under the Agreement to federal departments and agencies. Canadian provincial, municipal or regional governments are not included. Clearly, this issue will be raised by other WTO members in the forthcoming negotiation and provincial government participation will be required. It is also relevant to note that this issue was raised before the Committee by several municipal councillors in British Columbia and in a subsequent submission from the Union of British Columbia Municipalities. Lyle Fenton, Councillor for the District of Squamish, noted that there has been no involvement of municipal governments in these negotiations, even though their impact will be felt at the local level. In his view, the federal government has a responsibility to consult municipal governments and ensure that they have adequate financial resources to study the implications for them before entering into agreements or undertakings. (Evidence, Meeting No. 121, April 27, 1999, Vancouver)

There are two primary difficulties in the non-tariff barrier field facing countries in the run-up to the WTO negotiations. First, the negotiations will deal with current NTMs. As indicated above, even in the event of a standstill agreement, there is considerable scope for governments to introduce new measures that adversely affect trade in goods. Second, NTMs are no longer primarily border measures. As such, issues will increasingly revolve around the impact of international agreements on the sovereign right of countries to establish domestic laws, policies, and practices to deal with what might be regarded as essentially domestic matters.

Negotiations related to NTMs in the new round will focus on further rule making and improving market access through commitments to eliminate or relax NTMs. They can also be expected to involve improving the disciplines on measures already covered by existing rules. At this stage it is not clear how the process relating to the negotiation of NTMs will proceed. The first step could involve an evaluation of the effect of specific categories of NTMs, and the identification of those that inhibit trade. This could be followed by the selection of priority NTMs to subject to negotiation. One might envisage a further step in which a framework and principles for the elimination and/or reduction of the selected NTMs could be developed, or for the identification of NTMs that could be subject to agreed disciplines, or to rules which set out the conditions under which they may be utilized. This could also include provisions to enhance transparency.

Views of the Private Sector

In overall terms, the Alliance of Manufacturers & Exporters Canada spoke for many industry witnesses in emphasizing that a rules-based international trading system with a level playing field where both the purchaser and the vendor know what they are dealing with is the best approach to multilateral trade and that the Millennium Round should be directed towards the greater liberalization of trade in goods, services, and investment. (Evidence, Meeting No. 95, March 4, 1999) In their view, remaining tariffs should be reduced or removed as soon as possible and customs clearance and documentation be made less troublesome. The Alliance identified an agreement on telecommunications and information technology as a priority. (Evidence, Meeting No. 103, March 22, 1999) While the Committee received relatively few specific recommendations on market access, some significant points were raised by other witnesses.

Gerry Fedchun, of the Automotive Parts Manufacturers' Association suggested that the government should pay more attention to NTBs than to tariff barriers in the next round, noting that quota systems, duty remission schemes, bureaucratic entanglement, immigration/entry restrictions, and transportation bottlenecks can do more to deter increased trade than a customs duty which is a known quantity. (Evidence, Meeting No. 122, April 27, 1999, Toronto) IBM proposed that Canada follow the fundamental objective of "maximum trade liberalization in the shortest time possible" and encouraged the government to consider the entire package of goods being traded when looking at tariffs. In this connection, they noted that the company's shipments of duty free components are hampered when a tariff is imposed on the containers to ship these products. (Evidence, Meeting No. 99, March 16, 1999)

Dan Gagnier, Alcan Aluminium Ltd. requested that the 6% duty on aluminium levied by the EU be removed, (Evidence, Meeting No. 122, April 27, 1999, Toronto) an item that was also identified by Canada's Ambassador to the EU. (Evidence, Meeting No. 136, May 13, 1999) He argued that the tariff is not in the best interest of the aluminium industry or its European customers. Joel Neuheiner, Canadian Pulp and Paper Association, requested that the current agreement providing for zero tariffs on pulp and paper products by January 1, 2004 be accelerated to January 1, 2000 and that it be expanded to other key trade partners such as China, India, and Latin American countries. (The Agreement currently includes Canada, the U.S., Japan, New Zealand, Korea, Hong Kong, Singapore, and the European Union). He also asked that Canada seek to clarify or, if necessary, strengthen obligations under the TBT, which he suggests are currently subject to a wide range of interpretation. The CPPA is opposed to creating new barriers to trade but does not object to environmental labels and standards as long as they are developed and used in a fully transparent, non-discriminatory fashion and according to proper and sufficient scientific evidence. (Evidence, Meeting No. 121, April 27, 1999, Vancouver)

The Alberta Forest Products Association noted that in Asia, tariffs and other import restrictions play a prominent role in inhibiting expansion of forest product exports. Canadian spruce, pine, and fir lumber still faces a 4.8% tariff in Japan which places Canadian exporters at a disadvantage to their Japanese counterparts who, in many cases, import the raw logs free of duties. (Evidence, Meeting No. 124, April 28, 1999, Edmonton) G. Shannon suggested that Canada should be seeking zero tariff levels for forest products and certain minerals in this new round of negotiations. (Evidence, Meeting No. 123, April 28, 1999, Toronto)

The Canadian Steel Producers' Association recommended, among other things, that all steel tariffs should be frozen and reduced to zero by 2005 and that all non-tariff barriers likewise be frozen and gradually removed. (Evidence, Meeting No. 101, March 16, 1999) Donald Belch, from Stelco Inc. argued that since North American steel markets are open, unfair trade laws (anti-dumping) must be responsive to protect the industry on both sides of the border which suffers due to dumping caused by an oversupply of steel from overseas. He also noted that since tariff reductions under the Uruguay Round Multilateral Steel Accord (MSA) were limited - with only Canada, the U.S., the EU, Japan and Korea participating - it may be difficult for Canada to negotiate meaningful changes in the WTO for the steel sector now that its major bargaining chip has been used. He added that steel supply to U.S. markets needs to be free of all restrictions and Canada should ensure that the WTO dispute resolution process does not get bogged down. (Evidence, Meeting No. 123, April 28, 1999, Toronto)

The Fisheries Association of Newfoundland and Labrador advised the Committee that fish is almost exclusively an export product and, as such, seafood tariffs are a major concern for Canadian producers. They referred specifically to the tariffs and tariff preferences maintained by the European Union as being areas that should be given priority attention. They also recommended that Canada seek improved access for value-added fish and seafood products in Pacific Rim and Latin American countries. (Evidence, Meeting No. 103, March 22, 1999) In this regard, Canada's Ambassador to the EU, Mr. Jean-Pierre Juneau, noted that the fish tariff problem is compounded by the preferences granted by the EU to Norway and Iceland that distort normal commercial activity. On northern shrimp, some exporting countries pay no duty, while Canadian shrimp exporters face a 20% EU tariff. This year, Canada succeeded in convincing the EU to establish a reduced-tariff quota for cooked and peeled shrimp at 6% instead of 20%. But this quota is limited in quantity (4,000 metric tonnes) and must be used between April 1,1999 and March 31, 2000. He suggested that a longer term solution is required. (Evidence, Meeting No. 136, May 13, 1999)

McCain Foods argued that Canada must attain better market access for their exports, as many countries still impose high customs tariffs. Non-tariff barriers must also be reduced, including arbitrary or changeable standards as well as SPS measures, so McCain export sales can achieve their full potential. It referred to Canada's asymmetrical trade policy that attempts to maintain market access barriers for dairy and poultry supply managed commodities while, at the same time adopting free trade for downstream food processors, as creating policy problems for firms in the food processing industry. The company argued for rationalization and an orderly transition to more open Canadian market access for foreign poultry and dairy products. (Evidence, Meeting No. 109, March 25, 1999)

Culture is, of course, the subject of a special chapter of this Report. Nonetheless, issues relating to market access are very much in the forefront of the debates on this subject. In his presentation to the Committee, Professor Keith Acheson of Carleton University suggested that "the industrial policy component of an agreement for cultural industries should be similar in principle to those governing trade and investment of other goods and services ...The reciprocal opening of markets will not be achieved if the scope to pursue cultural policy is not appropriately constrained... Mutually beneficial disciplines can be achieved only if a restriction in one instrument, say subsidies, cannot be opportunistically evaded by altering others, such as increasing tax credits." (Evidence, Meeting No. 96, March 9, 1999) Mr. Dennis Browne, Director of the Centre for Trade Policy and Law, argued on the other hand that the physical trade aspects of cultural products are significantly different than those of other goods and, as such, there is a strong basis for claiming that trade rules on cultural products be different than those applied to other goods. (Evidence, Meeting No. 96, March 9, 1999)

Canada's Ambassador to the EU, Mr. Jean-Pierre Juneau, made a number of important observations concerning access to the EU Market when he appeared before the Committee. While much of his comments were directed to the problems of two-way trade in agricultural sector including the issues of export subsidies, market access, and domestic support in the face of budgetary and EU expansion pressures, he noted that the EU would also be pressing other issues. These include the strengthening of the multilateral system, a further reduction of import tariffs and non-tariff restrictions, a higher level of liberalization for services worldwide, a transparent framework of international rules on investment consistent with sustainable development, an international framework for competition policy including enforcement mechanisms and transparent and non-discriminatory procurement practices.

With regard to industrial tariff reductions, the EU has advanced two options. The first is an approach combining the use of tariff bands within which all members will be obliged to fix their tariffs with a maximum overall simple weight average tariff. The second is a differentiated duty approach combining maximum tariff rates per tariff line with maximum simple weight overall averages. For example, the maximum tariff rate of 7% for specific products provided that the average rate for a group of products does not exceed 5%. Both alternatives would be differentiated between developing and less developed countries. Apparently, the EU Commission stresses the importance of defining an approach that could be implemented with no specific exemptions for certain products. The Commission is also strongly encouraging developing countries to support industrial tariff negotiations in their own interests.

The Ambassador Jean-Pierre Juneau noted Canada has certain specific tariff interests that should be addressed in this round, including our access on fish products, value added forest products, and non-ferrous metals. Overall, he observed that Canada is one of the few countries, along with the U.S., Japan, and Australia, which does not benefit from some preferential access to the EU market. The occasion of the new round could be used to reduce this disparity for a number of products that we export to the EU and to regain some of the access to various countries (such as the United Kingdom) that was lost on their joining the EU. This applies to products such as wheat and cheeses, and other products such as wines and canola.

Conclusions and Recommendations

Given the size of Canada's market and population, the Committee concludes that Canada must rely heavily on foreign markets for our continued growth and prosperity. In an interdependent globalized world economy, goods and services trade is closely linked to foreign investment flows, access to new innovations, ideas and technology, and the movement of individuals and management skills. An increase in goods trade is usually accompanied by increased trade in related services and investment, particularly in the high-technology sector and services sectors. A new round of WTO talks has the potential to open new and expanded opportunities for Canadian business in all of these areas of economic activity. As such, the first priority in the new WTO round must be to seek improved access to world markets for all Canadian goods and services and improve access to high technology and knowledge-based products, innovations, and services which will enhance the productivity and competitiveness of Canadian industry to better position and serve world markets.

Recommendation 17

The Government, in close consultations with the business community and provincial governments, should identify as quickly as possible those markets, products, and trade barriers that Canada should target for improved access negotiations in the next round.

The major countries from which Canada will be seeking concessions in the new negotiation are in favour of a broad-based negotiation. While tariff issues with our principal trading partner, the United States, are mainly covered by NAFTA, non-tariff issues, services, agriculture and the new issues will figure predominantly in these bilateral discussions. In the EU and Japan, Canadian exporters continue to face formidable tariff and non-tariff barriers to goods and services, as they do in other developed and developing countries. It appears to the Committee that the ingredients for a broad-based round of WTO negotiations are present and, in our view, this approach offers the best possible avenue for Canada to achieve a balanced outcome in the negotiations.

Recommendation 18

Since, in the Committee's view, a broad-based round of WTO negotiations appears to offer the best approach for Canada to achieve a balanced outcome in the negotiations, the Government should work towards reaching a consensus in this regard within the WTO.

Specific tariffs of other countries that are adversely affecting Canada's ability to export to these markets must be identified and their reduction or elimination pursued with vigor during the negotiations. At the same time efforts must be intensified, in cooperation with domestic industry and other stakeholders, to establish items on which reductions in the current level of the Canadian tariff can be offered in return for lower tariffs on exports. In this context, Canadian exporters now enjoy preferential tariff access to the United States, Mexican, Chilean, and Israeli markets as a result of NAFTA and bilateral agreements. If these countries agree to reductions in their MFN tariffs with the rest of the world in a WTO tariff negotiation, the result will be a reduction in Canada's tariff preference in these markets. These reductions should be identified and taken into account in assessing possible benefits that might accrue from better access to other markets. As we approach the Seattle Ministerial Conference, Canada must begin, in cooperation with the Canadian export community, to fine-tune our negotiating objectives relative to our major trading partners including the United States, the European Union and Japan. Because the European Union is our second most important trading partner, accounting for Canadian goods exports of more than $15 billion last year and as our trade with the United States is primarily governed by NAFTA, the European Union will be one of Canada's most important negotiating partners in the new round. Fish and seafood, wines, non-ferrous metals, and wood products should be given particular attention in this context.

Recommendation 19

The Government should, working closely with Canadian exporters, focus its tariff and non-tariff goods negotiations in the next WTO round on our major trading partners including the United States, the European Union and Japan, with particular attention to fish and seafood, non-ferrous metals, wines and wood products.

It is anticipated that the developing countries will be seeking in the negotiation as much free access as possible to the markets of developed countries, including Canada. Indeed, at the recent WTO Symposium on Trade and Development the former Director General and a number of other participants requested that developed countries provide duty-free access for all export products of the least developed countries. The Committee did not receive representations from firms involved in production of goods normally thought of as import-sensitive vis-à-vis developing countries. These firms will need to be canvassed for their views prior to the Government taking definitive negotiating positions in respect of these products. However, in principle, the Committee is generally supportive of the views it received calling for Canada to open its markets to aid in the development process.

Recommendation 20

The Governments should undertake early consultations with Canadian firms producing developing country import-sensitive products, especially goods from the least developed countries, with a view to providing improved access to the Canadian market for these goods.

All of the non-tariff agreements referred to in this chapter are potentially subjects for negotiation. As a relatively small country, Canada must continue to rely on the WTO rules-based trading system as the primary mechanism for protecting its international trade interests. Thus, Canada's goal in the non-tariff negotiations should be to ensure that existing WTO Agreements are clarified where necessary and made as transparent as possible. Bilateral and regional trading arrangements should be fully consistent with the trade rules negotiated within the WTO and any new agreements concluded relating to the new issues should likewise be clear, precise, and free from ambiguity. These issues should be approached in full cooperation with provincial governments as necessary with a view to ensuring their effective implementation in Canada.

Recommendation 21

The Government should be well prepared to enter into negotiations respecting all of the goods related non-tariff agreements; moreover, Canada's participation in these discussions should be closely coordinated with the provinces to ensure that, where necessary, any undertaking agreed upon can be effectively implemented.

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1^# Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.