FAIT Committee Report

            In any examination of trade remedies that individual countries have at their disposal, one needs to separate out the legitimate use of anti-dumping, subsidies and countervailing measures with those that are exercised improperly. The use of these trade remedies has become a growth industry and now appears to be a great opportunity to clarify the rules.

            In particular, anti-dumping abuses have become an increasingly serious problem for the international trading system. Although WTO rules currently enable Member countries to protect themselves against the infusion of goods sold below cost or at prices below that found in the home market, this right can be (and is) misused as a form of trade protectionism. Giving greater clarity and openness to anti-dumping rules and other trade remedies, so as to lessen their abuse, is now being increasingly viewed as an urgent priority for the world trading system.

            Until the 1990s, the use of anti-dumping action was largely concentrated in developed countries. More recently, however, many other countries have started to impede imports under new anti-dumping legislation. Regrettably, not all countries have interpreted WTO rules (i.e., the 1995 WTO Anti-Dumping Agreement) in the same manner, with the result that a growing number of disputes has arisen between WTO Members. Developing countries in particular stand to gain from any ultimately successful reform efforts to restrict the use of anti-dumping action.

B.     Developments at Doha

            Efforts were made during both the Tokyo and Uruguay Rounds to negotiate anti-dumping codes imposing some constraints on the use of anti-dumping remedies, but progress was minimal. One of the obstacles to such progress is the fact that the ability to take trade remedy actions to address "unfair" trade practices has traditionally been a sacred cow in the U.S. At the Seattle WTO Ministerial in 1999, the Americans refused to attempt to clarify anti-dumping rules so that all countries could play by the same rules.

            The issue of trade remedies continues to be an extremely sensitive one south of the border (e.g., the Trade Promotion Authority under consideration there contains certain conditions including those affecting the use of trade remedies). Fortunately, the U.S. played a vital leadership role at Doha by placing anti-dumping on the table. At Doha, the decision was made to negotiate on subsidies and on the procedures to deal with them and with anti-dumping.

C.     The Canadian Perspective

            Don Stephenson (Director General, Trade Policy Bureau II, Services, Investment and Intellectual Property Bureau), informed the Sub-Committee that the Government of Canada’s position on the use of trade remedies is a balanced one: it wishes to maintain the right to use trade remedies in legitimate situations but desires to curb abuses. It intends to press that agenda as well as work together with Europe, the U.S. and other developed countries to obtain greater commitments from developing countries on due process and transparency in the administration of trade remedy rules. For their part, he noted, developing countries would use any concessions made in that area as leverage to obtain more disciplines on the use of those measures in developed countries.

            Peter Clark of Grey, Clark, Shih and Associates Ltd. referred to all anti-dumping systems as bad, referring to anti-dumping as "arbitrary and capricious," with those of Canada and the U.S. labelled as the worst. He noted that Canada has always treated anti-dumping as a tax statute, as opposed to an international trade dispute. According to Mr. Clark, a different approach to anti-dumping is required.

            The Canadian Manufacturers and Exporters (CME), in their written submission to the Sub-Committee, called for an overhaul of the WTO anti-dumping code to guard against protectionist abuses. The CME wanted the term "dumping" to be redefined so that duties would be levied only in situations where market-distorting practices were identified. Mark Boudreau of that group went so far as to advocate a convergence of trade remedy processes in WTO Member countries.

            Clifford Sosnow of the Canadian Chamber of Commerce was also critical of the existing situation, welcoming any discussion at the WTO that would lead to "a system of clearer, fairer, and more efficient rules" regarding the use of trade remedies. He referred to the use of anti-dumping and countervailing measures as a form of disguised protectionism.

            The Sub-Committee believes that an overhaul of the WTO trade remedy provisions to restrain protectionist abuses is urgently required. We are also of the view that Mr. Clark’s concerns regarding the existing Canadian anti-dumping system are of sufficient importance to warrant a full-scale review. The Sub-Committee recommends:

Recommendation 15:

That the federal government seek a thorough clarification and strengthening of the WTO’s trade remedy rules, with the stated objective of curbing the disturbing rise in protectionist abuses. Special focus should be placed on reforming current WTO anti-dumping rules to impose fundamental constraints on trade protectionism.

Recommendation 16:

That the Government of Canada undertake a thorough examination of its own anti-dumping rules, including any required changes stemming from the outcome of the WTO negotiations.

            The list of global irritants in agricultural trade, as William Miner (Senior Associate, Centre for Trade Policy and Law, Carleton University) so aptly revealed to the Sub-Committee, is insanely long. Full resolution of all of the agricultural trade-policy issues will require multilateral rules and commitments.

            Export subsidies and domestic price supports in other countries create market distortions that spur demand for import protection. The result of that intervention is production surpluses, artificially depressed and volatile world prices, and unnecessarily high food costs for domestic consumers. Developed countries are the principal culprits when it comes to such intervention.

            Sergio Marchi informed the Sub-Committee that, according to OECD calculations, the richest countries spend over $250 billion U.S. per year on subsidies, of which 80% comes from the EU, the U.S. and Japan. This is an absurd number, given that it represents over 35% of the value of agricultural production.

            William Miner revealed that large agricultural subsidies provided by the Europeans and Americans (e.g., grains) are problematic in that they get capitalized back into the cost structure of the industry (e.g., land values rise), with negative impacts on competitiveness of the industry receiving the subsidies. In the short run, countries providing this level of support will find it difficult to adjust to the loss of subsidy in the move to world prices. He is less concerned about the long term. On this point, Jack Mintz of the C.D. Howe Institute gave the example of New Zealand, which took unilateral action to remove domestic subsidies — after a difficult transition, there’s been a huge increase in agricultural productivity, with much bigger sheep farms in place now.

            WTO negotiations will also be required to make progress in restricting domestic support and in enhancing market access.

B.     Previous WTO Action on Agriculture

            The 1986-94 Uruguay Round of trade negotiations marked the first time that WTO Member countries were able to make significant progress in reducing the level of trade-distorting support in agricultural trade and in establishing a system of rules governing trade in agricultural goods. Prior to that point, GATT rules had been for the most part ineffective in curtailing the increase in agriculture protectionism, particularly in the cases of export and domestic subsidies.

            At the Uruguay Round, issues related to agriculture were addressed in the Agreement on Sanitary and Phytosanitary Measures as well as the Ministerial Decision concerning Least-Developed and Net Food-Importing Developing Countries. The former aimed to discourage WTO Members from using health and safety regulations as a form of disguised protectionism by requiring all bans or quarantines to be based on sound science or generally accepted international standards. Most significant, however, was the WTO Agreement on Agriculture in 1993.

            The Agreement on Agriculture strengthened the rules governing agricultural trade with the aim of establishing a fair and market-oriented trading system as well as improving predictability and stability for both importing and exporting countries. To that end, the Agreement imposed binding commitments on Member countries to lower protective barriers in three areas: domestic support, export competition and market access.

            Domestic support (such as production subsidies) is to be lowered by an average of 20% in the developed world and 13% in developing countries. However, the level of reduction on specific types of support depends on the nature of the assistance measure. In WTO parlance, subsidies are categorized according to a series of colour-coded "boxes." Initially these were intended to resemble traffic lights. "Red box" measures were forbidden ("stop"), "amber box" instruments were to be reduced ("slow down") and "green box" subsidies were permissible because they had at most a negligible impact on trade.

            The Agreement on Agriculture identifies no "red box" subsidies, but Member countries are not able to provide domestic support above the reduction commitment levels of the "amber box" category. The Agreement also produced a fourth colour, the "blue box," created at the insistence of negotiators from the EU and the U.S., who demanded greater flexibility in applying their respective agricultural policies to the new international rules. "Blue box" measures grant an exemption to those "amber box" policies that fall within production-limitation programs.

             In terms of export subsidies, the agreement is similar to that of market access. Developed countries agreed to reduce their expenditures by 36% from their 1986-1990 base period levels over the six-year implementation period. For developing nations, the reduction is 24% over ten years.

            In the area of market access, Member countries agreed to replace their existing non-tariff protective measures (import quotas) with tariffs. This was done in such a way that the new tariffs provided essentially the same level of protection as the previous border-protection measures. These new tariffs were then subject to a process of gradual reduction, taking into account the differing needs of developing countries and the developed world. Developed countries were to lower their tariffs by an average of 36% over a six-year period. By contrast, the developing world committed to an average 24% reduction in tariffs, phased in over ten years. In addition, minimum access tariff quotas were established to protect imports that accounted for only a small percentage of annual domestic consumption.

            To oversee the implementation of the Agreement, and to provide Member countries with a forum to discuss matters related to the Agreement, the WTO created the Committee on Agriculture in 1995. The Committee meets officially four times a year and monitors the implementation schedule of the Agreement.

            The Agreement on Agriculture represents only the first phase of agricultural reform. Under Article 20 of that Agreement, WTO Member countries pledged to continue discussions on reducing support and protection in that sector. This obligation, commonly referred to as the "built-in agenda," was the basis for a new set of agriculture negotiations that began in March 2000 and is still underway. In the first phase of these negotiations, lasting one calendar year, participating countries submitted proposals outlining the various elements of their respective negotiating positions.

            In the second and current phase, discussions are occurring at a greater level of technical detail on all issues and options for policy reform. The Doha Ministerial Declaration established clear objectives and a timetable for these negotiations. These are discussed in more detail below.

C.     Doha and Agriculture

            At the WTO’s Fourth Ministerial Conference in Doha (November 2001), Member countries agreed to build on the progress made in the Agreement on Agriculture and, as mentioned above, established objectives and a timetable for the second phase of ongoing negotiations in the "built-in agenda."

            The Declaration also provides clear timelines for ending the negotiations within a three-year time frame. By the end of March 2003, a draft framework (or modalities) for concluding the negotiations is to be finalized. The objective here is to develop guidelines or rules governing trade. For the elimination of export subsidies, for example, this means identifying what the objective really implies, what kind of rules to apply, how to calculate existing subsidies, and what formula is to be used to reduce the subsidies. Individual countries’ draft schedules of additional commitments in agriculture trade liberalization are to be provided by the time of the 2003 Ministerial Conference, the expiry of the "peace clause" that currently shields agricultural subsidies from dispute settlement challenges.

            Suzanne Vinet (Chief Agricultural Negotiator for International Trade and Policy Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food) informed the Sub-Committee that while this date is critical — by that time countries should be able to have a preview of the relief (from subsidies) that farmers can likely receive — more than likely the draft modalities or framework will not be found to be satisfactory and progress will be reviewed at the next Ministerial Conference at the end of 2003. Key factors influencing progress in the next year include: the U.S. farm bill; additional reform of the EU’s agricultural policy; and how the WTO deals with the concerns of developing countries and ensures that they benefit from this round of trade liberalization. The agriculture negotiations are to be finished by January 1, 2005, in conjunction with the conclusion of the other WTO negotiating elements.

            The Declaration reconfirms Article 20 of the WTO Agreement on Agriculture in stressing the need to provide developing countries with "special and differential treatment" so as to allow these countries "to effectively take account of their development needs, including food security and rural development."

            There is no question that Doha set ambitious goals in agriculture. The Ministerial Conference was a real milestone in that it was the first time that WTO Members had committed to negotiate a phase-out of export subsidies. They also undertook to make large reductions in trade-distorting domestic support and to enhance market access significantly.

            The agreement to explicitly include sections on agriculture in the Ministerial Declaration was the result of a compromise reached at Doha. The EU has traditionally been heavily protectionist in its agricultural policies and agreed to broach the subject in negotiations only in exchange for environmental issues also appearing on the agenda.

            However, the EU was also successful in inserting the phrase "without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations" into Article 13 of the Declaration. This has raised the question of whether or not any meaningful concessions will come out of Europe on the topic of agricultural subsidies. The EU’s own assessment of the Doha results states that "there is no commitment now to negotiate the elimination of export subsidies."

            In addition, the EU’s agricultural trade policy has long reflected the European view that there is more to agriculture than the efficient production of food. Considerable value is placed on measures to keep alive small farms and to protect food safety and the environment. The WTO Ministerial Declaration reconfirms Article 20 of the WTO Agreement on Agriculture that such non-trade concerns "will be taken into account in the negotiations as provided for in the Agreement on Agriculture."

            While Europe has been the most vocal proponent of agricultural protectionism, the position of the U.S. has been mixed in this area. The U.S. is a net exporter of agricultural goods and as such is generally in favour of liberalization. However, it too retains a number of protectionist policies that could threaten the forthcoming round of trade negotiations.

D.     Key Issues from a Canadian Perspective

            The Doha Ministerial Conference saw Canada meet its primary objective, the securing of a launch of a broader round of multilateral trade negotiations. Only through such a comprehensive round can the necessary trade-offs be made between WTO Members to ensure that progress in agricultural trade liberalization can be achieved. The reverse is also true. As Sergio Marchi reminded the Sub-Committee, countries distancing themselves from the basic Doha commitment of phasing these subsidies out have to realize that this action would exert a dramatic and negative effect of making progress in other negotiating areas.

            The three key Doha objectives (i.e., elimination of export subsidies; large reductions in domestic support; improvement in market access) closely match those Canada had developed leading into the 1999 Seattle Ministerial Conference. The Government of Canada is of the view that curtailing the high levels of support and protection provided by a limited number of developed countries will enable unsubsidized producers throughout the world (including developing countries) to realize their agricultural potential. However, as Suzanne Vinet pointed out, the devil is in the details and there will be a lengthy implementation period after the negotiations have wrapped up.

            Without a doubt, Canada is pursuing a "level playing field" in agriculture, an objective shared by many developing countries. The objective here is to enable Canadian farmers to compete on a even footing with other farmers, and not with the treasuries of the countries they reside in. Given that Canada is a sizeable agricultural exporter and importer, and that its domestic market is mature, it stands to benefit from greater access to world markets, a strengthening of the international rules that govern agricultural trade and more effective competition in the global marketplace. On tariff reduction alone, the Guelph, Ontario based George Morris Centre concluded in 1999 that tariff elimination over a ten-year period would contribute an extra $2.5 billion to the agricultural industry each year.

            All of the witnesses canvassed by the Sub-Committee supported the general thrust of the federal government’s initial negotiating position with respect to the removal of export subsidies and large-scale lowering of domestic support. Where they tended to differ more significantly was on the third element of the government’s position, namely market access.

            Mark Boudreau of the Canadian Manufacturers and Exporters called on WTO negotiators to "seek a global agricultural market that is free of production subsidies and trade barriers. There is no reason why agriculture should be treated differently than the manufacturing or service sectors. Negotiators should seek to cut global agriculture tariffs in half and the highest tariffs more sharply with the goal of eventually eliminating all agricultural protection."

            Clifford Sosnow of the Canadian Chamber of Commerce expressed his support for the federal government’s negotiating position on agriculture. He felt that eliminating subsidy barriers was a "win-win" situation for both Canada and for developing countries; indeed, liberalizing trade in agriculture was one of the principal means by which the Doha Development Agenda could be advanced.

            Jack Mintz would support changes, coordinated at the international level, which would eliminate many of the subsidies available for agriculture. While all countries would be better off, he is not confident that the Americans or the Europeans are ready to give up subsidies so it could take quite a while. Mr. Mintz also observed that major adjustments would have to occur if Canada acted unilaterally to remove all subsidies. However, if there were an internationally coordinated response, the prices of agricultural goods would increase to make up for the loss in subsidy revenues so there would be less of a need for adjustment.

1. Removal of Export Subsidies

            One witness, Mike Dungate (General Manager, Chicken Farmers of Canada), remarked that while he was in full support of eliminating export subsidies, the chances of eliminating them in this round were slim. His solution was to limit their use, possibly as a percentage of countries’ agricultural production.

           Mr. Hill also stated categorically that the Canadian Wheat Board (CWB) was not an export subsidy, that government guarantees and the CWB’s ability to operate as a commercial organization had to be maintained and that Article 17 of the WTO explicitly allows for the existence of single desk exporting authority. These subjects were also broached by William Miner, who argued that an effective WTO result will likely include disciplines on state trading enterprises and export credits.

            The Sub-Committee is convinced of the merits of the international community ridding itself of all direct and disguised export subsidies. We recommend:

Recommendation 17:

That the federal government seek WTO consensus to have the WTO Agreement on Agriculture stipulate that export subsidies in agriculture be immediately eliminated. The government should encourage the WTO to examine countries’ use of export credits, export promotion activity and food aid to ensure that these do not embody any subsidy component.

2.      Large-Scale Reduction in Domestic Support

            WTO negotiations will also be required to make progress in restricting domestic support. The biggest challenge in this area will be to constrain U.S. subsidy support to its farmers and bring the U.S. domestic subsidy system under control. As Peter Clark put it, financial support to farmers in the U.S. is driven by politics, not economics, and is a way of life there.

            William Miner pointed out that the Americans have dramatically raised their farm support in the past three or four years, to the point where they are likely back to (or even beyond) the level of support provided in the mid-1980s. Furthermore, the U.S. always attempts to structure its financial support as emergency support, income support, and safety nets. These programs are decoupled (not directly linked to commodity production), rendering it difficult to challenge them (even though they really distort production), and they remain below the commitment the U.S. made at the Uruguay Round. According to Mr. Clark, the only way to deal with this is to challenge the Americans (e.g., through anti-dumping law).

            According to Mr. Miner, Canadian farmers face a serious problem with the magnitude of U.S. subsidies (these distort production and trade) and the persistent threats and action by the Americans to limit commodity imports. Successful trade reform should provide Canadian producers with a more level international playing field on which to operate and lessen the risks of producing for export.

            In particular, the U.S. Senate is currently debating a farm bill (S. 1628, the Agriculture, Conservation and Rural Enhancement Act) that could, it is argued by Senate Republicans and the U.S. Administration, violate its existing WTO commitments. This bill follows another already passed in the House of Representatives in October. It would raise farm policy spending by an estimated $73.5 billion over ten years. Payments to farmers would be structured counter-cyclically — they would increase as commodity prices fall and production rises.

            These counter-cyclical payments would be categorized as "amber box" payments and thus be subject to reduction commitments. Furthermore, there is a strong likelihood that regardless of which farm bill, the Senate or the House version, is passed, the additional funds would push U.S. farm support above its Uruguay Round commitment of $19.1 billion.

            Suzanne Vinet informed the Sub-Committee that the U.S. needs to show leadership for an agreement to materialize. A farm bill going in the other direction will not help. The federal government is still hopeful that good changes will be made to the bill and that an aggressive WTO outcome could help the Americans go in the right direction.

            Several witnesses presented specific recommendations to curb the use of production and trade-distorting domestic support. Larry Hill called for three important changes: imposition of official limits on total farm support expenditures; elimination of the blue box provision and an overall cap on the minimally trade-distorting subsidies captured by the green box provision. Neil Jahnke of the Canadian Cattlemen’s Association also requested a further reduction in the level of permissible spending on domestic support and the elimination of the blue box category of domestic subsidies. Similarly, Bob Friesen advocated a cap on all domestic support, based on a certain percentage of the value of farm-gate production; withdrawal of the exemption of the blue box programs from the spending limits; and a clarification and tightening of green box programs. Liam McCreery (President, Canadian Agri-Food Trade Alliance) stressed the need for meaningful reductions in trade-distorting domestic support programs established on a product by product basis. Mike Dungate of the Chicken Farmers of Canada recommended placing a 10% cap on amber box support. The Sub-Committee finds many of these proposals to be eminently sensible and recommends:

Recommendation 18:

That the WTO Agreement on Agriculture be altered to dramatically restrict the provision by Members of production- or trade-distorting domestic support. In this reform effort, serious consideration should be given to establishing maximum limits on support that distorts production or trade; eliminating the blue box category of domestic subsidies and clarifying green box support programs to ensure that they have no production- or trade-distorting effects.

3.     Market Access

            WTO negotiations on market access are required to make gains in the key markets in Asia, the Middle East and Europe and in certain sectors (e.g., sugar products). Tariffs on agricultural goods remain high and prohibitive tariff rate quotas continue to be in existence on certain goods.

            A number of witnesses called for reductions in market access barriers. Neil Jahnke proposed that all in-quota tariffs be eliminated, that other tariffs be significantly reduced, that clear and binding rules govern the administration of tariff rate quotas, and that the maximum possible increase in minimum access commitments be realized.

            Liam McCreery and Sandra Marsden also advocated aggressive action to improve market access. Mr. McCreery has requested sizeable reductions in all tariffs, significant increases in minimum access commitments and zero-for-zero agreements where international commodity sectors support them. Ms. Marsden, while generally supporting the Government of Canada’s three-pillar approach to the negotiations, pointed out that the Canadian position on market access was insufficiently aggressive. Dependent as the sugar and sugar-containing product industry is on the protected U.S. market, the Canadian Sugar Institute is advocating that the market access negotiations address all forms of protection.

            David Barlow (Canadian Restaurant and Food Services Association) criticized the Canadian initial negotiating position on market access as being insufficiently ambitious. Although it does request improvements in market access, it tries to retain important barriers — in the form of triple-digit tariffs — in a number of sectors under supply management (e.g., dairy, poultry). Stephanie Jones of the same organization laid out the following features of an aggressive ten-year transition plan to open up the Canadian market to dairy and poultry imports: incremental increases in import access levels of ten percentage points per year; a firming up of WTO commitments to make import access obligations clear and binding; an elimination of TRQ country allocations and other restrictions; and an annual reduction of 10% of all tariffs.

            Bob Friesen stressed the need for all WTO Members to offer the same level of minimum access and that this access be based on clear and precise rules. Those countries, such as Canada, that have already provided access greater than the common minimum, should not be required to raise their market access. All other countries should respect the agreed to minimum level. The Canadian Federation of Agriculture is also calling for zero tariffs within TRQs; the provision of market access on a product-specific basis; the elimination of tariff escalation based on the degree of value-added; and the maximum reduction of all single stage tariffs (those not protecting a TRQ).

            Finally, Yves Leduc of the Dairy Farmers of Canada stated that market access was a critical element of the negotiations and pointed to the credibility of the Canadian position on this (i.e., to place the same minimum access requirement on all countries). In essence, the requirement should be set at 5% as was established at the Uruguay Round.

            An assessment of the various positions put forward on the market access question suggests that the opinion of witnesses on the desirable degree of market opening has split between those groups keen to impose a 5% minimum access requirement on WTO Members and those supporting a considerable easing of import restrictions. The Sub-Committee, in an effort to at least partially bridge the gap between the two competing visions of import protection and recognizing the need to establish a "level playing field", recommends:

Recommendation 19:

That, in an effort to improve market access as part of the WTO’s negotiations on agriculture, the Government of Canada advocate the establishment of a product-specific minimum access requirement of 5% using the most recently available consumption period as a base period. Clear and binding rules should govern the administration of the tariff rate quotas. Moreover, all in-quota tariffs should be abolished and those not protecting a tariff rate quota markedly reduced. A negotiated phase-in of import access level increases should also be implemented in parallel with the implementation and enforcement of new market access rules.

            Suzanne Vinet told us that the Canadian position, as outlined in August 1999, is that the current effective supply management system needs to remain intact. Sergio Marchi reinforced this view, pointing out that the Government of Canada is of the view that Canada’s capacity and ability to use supply management in agriculture is entirely compatible with our WTO obligations. How we have organized ourselves in agricultural production is similar to how other countries have done it. Moreover, there was no reference in the Doha document to the supply management issue. He noted that if, in the course of negotiations, countries wish to pursue this, that is their prerogative.

            The Dairy Farmers of Canada were also keen to preserve the existing system, arguing that supply management is of benefit to both producers and processors, and costs nothing to governments to continue.

            Bob Friesen expressed concern that agricultural competitors could be successful in deregulating Canada’s orderly marketing structures while also not facing restrictive limits on the use of subsidies. If that scenario were to materialize, then the entire domestic agricultural sector would suffer.

            Other witnesses were not so convinced of the merits of supply management. According to Bill Dymond, tariffs in the dairy and poultry sectors in the order of 200-300% represent a massive transfer of income from consumers to producers, and from taxpayers to producers. He said it was a crazy system when the value of the quota to produce exceeds the value of other capital assets necessary to produce. Do we wish to keep supply management from the negotiating table, continue with those transfers of income, and pay the sizeable economic costs of this distorting policy? For example, we miss out on value-added opportunities (e.g., McCain’s in New Brunswick not being able to obtain the amount of cheese required at lower prices to sustain pizza production). Eventually, there will be a price to pay at the negotiating table.

            William Miner noted that regarding the future of supply management, quota values in the dairy and poultry sectors have gone up dramatically. However, this affects one’s competitive position as the country begins to open up to competition (a continental market in the supply-managed sector is beginning to emerge). One will have to anticipate tariffs of these supply-managed products coming down somewhat, so there will be a challenge to lower costs.

            Finally, Jack Mintz indicated that he would favour a removal of the supply management that has been undertaken in Canada.

4.     Food Safety

Several other agricultural issues were discussed during the Sub-Committee’s hearings. For example, a number of groups advocated that the Agreement on Sanitary and Phytosanitary Measures not be revisited in the upcoming round of negotiations, while Mike Dungate suggested that Canada may wish to have it re-opened to restrict the use of non-tariff barriers.

Neil Jahnke expressed the need to have technical standards, approval of genetically modified organisms, product labelling and food safety requirements based on internationally accepted science. The Sub-Committee appreciates these comments, especially since they mirror those contained in our already mentioned report on Canada-Europe economic relations.

            Services, the largest and most dynamic component of the economies of both developed and developing countries, account for over 20% of total global trade (1999). Important in their own right, they also serve as valuable inputs into the production of most goods. There is every reason to believe that trade in services will remain the fastest growing area of world trade.

            Accounting for roughly two-thirds of Canada’s GDP and for $43 billion in annual exports, the services sector is also a key and growing component of the Canadian economy. All told, almost three-quarters of domestic employment lies in services. Moreover, the services sector has led the transformation of the Canadian economy into a knowledge-based economy.

            Trade in services is very important to Canada, with service exports having grown by 7.1% in 1999 to a level of $49 billion. Although the United States is the principal market for Canadian goods, our services exports are more diversified. On the other side of the trade ledger, imports of services increased by 5.6% in 1999, attaining a total of over $55 billion.

            It is generally thought that substantial economic gains could be realized through increased liberalization in services trade. As the world’s 12th largest services exporter, Canada can gain significantly from improved access to foreign markets. The Government of Canada is committed to broadening trade in services, thereby generating growth and employment for Canadians.

B.     The WTO and Services

            Only relatively recently have services become the subject of multilateral trade negotiations. The 1995 GATS agreement was the first to provide a comprehensive framework of multilateral, legally-enforceable rules covering global trade in services. This agreement extends the traditional GATT principles of national treatment (no discrimination against foreign producers compared with domestic ones) and most-favoured nation (no discrimination against certain WTO Members compared with other ones) to the global trade in services.

            Under the GATS, no country can be forced to open up a particular service or sector, even if it were to decide to request an elimination of barriers in other markets. As Peter Clark informed the Sub-Committee, whereas the GATT (goods) contains "negative" lists (parties include the sectors and activities they want excluded from the agreement), the GATS (services) contains a "positive" list of commitments that parties wish to make (i.e., everything is excluded unless it is specifically included). In other words, WTO Members are required to apply new GATS rules only to service sectors they have decided to put forward. The downside to this approach is that in a number of service sectors, very few countries have made market-opening commitments. Another important in this regard is that services "supplying the exercise of governmental authority," which includes many of the public services provided in Canada, are not even covered by the GATS.

            Negotiations on amending the services agreement, ordered by the Uruguay Round, have been underway since February 2000. The current talks on the General Agreement on Trade in Services (GATS) were part of the WTO’s built-in agenda (along with negotiations on agriculture) and were designed to achieve additional liberalization through a broadening of the relatively weak commitments made previously by WTO Members.

            At the Doha Ministerial Conference, WTO Member countries agreed to continue the negotiations on services (i.e. expanding market access and further liberalizing trade in services) under clear and firm timelines. Countries are to provide their initial requests for specific commitments by other countries to liberalize certain services sectors by 30 June 2002. Initial offers, outlining the services sectors each member will be willing to liberalize, are expected by 31 March 2003. Canada and other WTO Members have, once again, reaffirmed the right of individual countries to regulate the supply of services.

C.      Views on the Canadian Position on Services

            The Government of Canada has taken the position that it would like to provide its service exporters (especially small and medium-sized businesses) with greater opportunities in emerging world markets. Targeted sectors include professional, business, financial, telecommunications, computer, environmental and transportation services. Improved access to foreign markets should enable Canadian service companies to take advantage of economies of scale, while enhanced competition at home should lead to lower prices for Canadian consumers, improved selection and a rise in service quality.

            However, Canadian authorities must also identify which of the country’s own services sectors it would like to liberalize. Officials have stated publicly that the outcome of the GATS negotiations will not jeopardize this country’s ability to protect important national interests in areas such as health, education and social services. Don Stephenson of DFAIT informed the Sub-Committee that Canada is already one of the most open service economies in the world but that in its initial position on the GATS it has committed not to negotiate on health, public education systems, and on social services. Canadian provinces will thus continue to be able to introduce measures limiting market access by foreigners.

            Mr. Stephenson went on to note that many of the fears that NGOs have in the area of public services have less to do with trade than with creeping privatization of those services and other policy changes. However, this position was not shared by the witness from the Canadian Centre for Policy Alternatives (CCPA). Bruce Campbell observed that his group’s main concern with the GATS is the threat to public services (i.e., education, health, social services, water management, etc.) that the agreement poses as well as its threat to domestic regulation in the public interest.

            On the former point, the CCPA is concerned about what Mr. Campbell referred to as GATS’ "constant one-way" pressure to privatize and commercialize, in that the agreement introduces major disincentives to any attempt to reverse the process where services have been privatized (i.e., where it turns out to have been a bad decision). He argued that the so-called exemption for public services (i.e., the exemption in the exercise of government authority) had major shortcomings, in that it would not include many public services if it was interpreted narrowly. The concern is heightened by the fact that Canadian public services are a mixture of both private and public finance and delivery, often in competition with private interests, and that no one had yet definitely said what would or would not be included.

            The CCPA representative also called on the Government of Canada to undertake a comprehensive review of the Canadian regulatory framework in terms of how it could be affected by the GATS negotiations. Specifically, the government should assess diligently the impact of existing GATS commitments on health care. He noted that there was an inherent contradiction between the government’s desire to boost export opportunities for Canadian services (including health services) in more open external markets and the desire to close the domestic health care system to foreign health care providers. He called on the government to not make commitments in the areas of education, health care, social services, water, and a range of important public services.

            Jim Knight (Executive Director, Federation of Canadian Municipalities) noted similar concerns, especially the possibility of GATS compromising the ability of municipalities to regulate within their jurisdiction (e.g., to protect the environment, procure services and deliver drinking water) or to deliver public services when commercial elements are involved. Many of the Federation’s concerns have been satisfactorily addressed in consultations with DFAIT officials, who have attempted to assure the organization that municipalities’ regulatory-making capacity would not be threatened. Even so, Mr. Knight continues to believe that some municipality activities could trigger international trade agreement challenges, and the FCM believes that these concerns need to be addressed prior to the continuation of negotiations.

            David Robinson (Associate Executive Director, Canadian Association of University Teachers) observed that existing protections in the GATS for education and other public services were inadequate. He referred to a legal opinion produced by the international legal firm Gottlieb & Pearson, which contradicted the federal government’s claim that public education was beyond the scope of the GATS since services "provided in the exercise of government authority" are excluded from the agreement. According to Mr. Robinson, education services provided in this country do not fully benefit from this general exclusion since they involve private funding and are delivered by a blend of public, non-profit and for-profit providers. The Association that he represents has made four demands: permanent protection in the GATS for public services; no new GATS commitments on education; no commitments on commercial training and education services; and review by the Government of Canada of the impact of commitments made in other service sectors (e.g., telecommunication services, libraries, research and development, professional services) on education.

            As a final point, Mr. Campbell expressed his concern about the democracy implications of the GATS. Specifically, he objected to the fact that WTO decisions affecting Canadian policies were being made in secret, far-away hearings.

            We understand the concerns that the CCPA, the FCM and other Canadians have regarding the impact of GATS and accompanying services negotiations on the provision of public services in Canada. The interplay between international trade negotiations and one’s domestic regulatory framework is also worthy of detailed examination. Given the nature of trade in services, domestic regulations play an important role in increasing or limiting the ability of exporting service firms to provide their services in a foreign market. It is one of the government’s vital roles to keep Canadians informed regarding the impact that trade negotiations could have on their day-to-day lives. We therefore recommend:

Recommendation 20:

That the federal government undertake, and render public, an examination of the impact of Canada’s existing commitments under the GATS on the effective provision by Canadian governments of health, education and social services and on the Canadian regulatory structure affecting them. This study should be updated once the WTO negotiations on services are nearing completion.

            The preservation and promotion of cultural identity continues to be a key objective for many WTO Members. Countries, when entering into trade agreements, often wish to retain the flexibility to pursue cultural policy objectives. Here, Canada is certainly no exception. The federal government continues to adopt the view that culture is more than a commodity, that it helps promote a sense of identity, and that it is thus deserving of protection. Canadian cultural policy has sought to balance the importance of its cultural exports with the desire to nurture Canadian culture domestically.

            Holding the opposite view is the United States, the world’s cultural superpower. What Canadians may view as a cultural industry, Americans tend to see as an entertainment industry. For this reason, the U.S. Administration has advocated that cultural goods and services be treated like any other good or service. Indeed, the U.S. submitted proposals to the WTO and FTAA negotiators in the Spring of 2001 that signalled its desire to place culture and cultural policies squarely on the negotiating table.

            At the WTO, negotiations on culture largely take place within the ambit of the GATS, which gives Member countries the option of including cultural services in the discussions if they so choose. Not surprisingly, the Uruguay Round saw only a small minority of countries make commitments to open up trade in cultural services to trade. However, the GATS is now up for renegotiation.

            According to Sergio Marchi, the issue of culture and trade is relatively new but it is one whose importance will continue to grow. As a result, much effort has been devoted to explaining the federal government’s position that initiatives to preserve and promote one’s cultural identity should not be interpreted as trade protectionism.

            Don Stephenson informed the Sub-Committee that the scope of the Government of Canada to protect Canada’s cultural diversity in the WTO negotiations is quite broad. The federal government, along with governments of many other like-minded WTO Members, does not intend to make any commitment that would restrict its ability to achieve its cultural policy objectives until such time as a new international instrument to safeguard the right of countries to promote and preserve their cultural diversity is established.

            This New International Instrument on Cultural Diversity (NIICD), which is expected to take several years to establish, aims to establish clear rules on which measures could be used to promote cultural diversity. The overriding objective regarding the NIICD is to preserve the right of countries to promote their culture while also respecting the rules of the international trading system and ensuring markets for cultural exports.

            The Government of Canada is currently attempting to build domestic and international support on the importance of cultural diversity and the need for a NIICD. It is working through such forums as the International Network on Cultural Policy, UNESCO, the Organization of American States, La Francophonie, and the WTO.

            Apart from Mr. Stephenson, the Sub-Committee also heard from two representatives of cultural industries. Robert Pilon (Executive Vice-President, Coalition for Cultural Diversity) observed that cultural services such as films, books or sound recordings are unlike any commodity or good, in that they embody more than just economic value. They are to be treated, he argued, differently than other goods and services. Mr. Pilon observed that the real threat would materialize if the American position on culture were to hold sway at the GATS negotiations. Existing Canadian cultural policies would have to be dismantled, he argued, if culture were to be subjected to the rules that typically govern international trade agreements.

            Mr. Pilon expressed his organization’s support for the federal government’s position that no new commitments would be undertaken on culture until a NIICD is in place. This NIICD would define the principles associated with cultural diversity and establish the right of individual countries to establish their own cultural policies. He noted Canada’s efforts to develop an alliance of like-minded countries around the world on the need to clearly designate cultural goods and services as separate and worthy of an international agreement outside of the WTO that could then somehow be linked back to the GATS.

            The Society of Composers, Authors And Music Publishers of Canada (SOCAN) argued that Canadian culture was actually not protected under Canada’s trade treaties, referring to the successful U.S. WTO challenge of this country’s policy on split-run periodicals. According to SOCAN, the adverse ruling against Canada demonstrated that the WTO had failed to develop a trade-rule regime that would treat cultural industries apart from other industrial goods or commercial services.

            The group made three recommendations to the Sub-Committee. First, it advocated that the GATS’ "bottom-up" structure be maintained and that no GATS commitments be offered on services. Also, a similar "bottom-up" structure should be adopted within any investment agreement to guarantee that no commitments prohibiting Canada from taking steps to preserve and promote cultural diversity would be undertaken, especially the ability to maintain and develop Canadian content requirements. Finally, SOCAN expressed concern that if progress on the NIICD were not to materialize quickly, decisions reached as part of the WTO negotiations on services could restrict Canada’s options. Therefore, it urged the federal government to adopt an international instrument on cultural diversity as soon as possible.

The Sub-Committee recommends:

            It is now generally accepted that foreign direct investment (FDI) flows are a key component of global economic growth and prosperity. Countries imposing restrictions on FDI risk losing the economic benefits (e.g., faster economic growth, larger capital base, new technology, higher wages) that foreign investment can provide. Moreover, production is increasingly occurring internationally, and investment and trade are now being viewed as complementary activities in firms’ efforts to service foreign markets. Indeed, over one-third of world exports are now being shipped between various entities of multinational companies.

            Foreign investment is also a key issue for Canada. For every year between 1996 and 2000, this country was a net exporter of investment capital. In 2000, the stock of Canadian direct investment abroad totalled $301 billion, compared with its stock of FDI of $292 billion. Being a net exporter implies that we have much to gain from rules that facilitate and protect capital exports, particularly in those economies lacking an appropriate legal system and displaying barriers to investment.

            The Sub-Committee heard compelling evidence of the importance of investment. Robert Keyes stressed that investment was a critical issue for the business community, in that it frequently preceded trade and that it represented a means by which technology could be transferred and skills developed.

            Developing countries also stand to benefit greatly from an international investment deal. FDI inflows can provide important advantages to these countries in the form of growth-inducing capital, technology and expertise. Their participation in such an agreement would provide a strong signal to the world that they welcome FDI and will not discriminate against foreigners in its treatment.

2.     The WTO and Investment

            Within the WTO, investment-related obligations are concentrated in the Agreement on Trade-Related Investment Measures (TRIMs) and the GATS. The former precludes WTO Members from imposing performance requirements (e.g., domestic sourcing) on incoming FDI flows. A number of developing countries, however, have experienced difficulties in meeting the WTO requirement that TRIMs-inconsistent measures be phased out by 1 January 2000, and have since requested extensions.

            The GATS, on the other hand, contains a number of investment-related requirements affecting the delivery of services through investments undertaken in foreign markets. These include the need for transparency as well as most-favoured nation obligations, market access opening and national treatment commitments.

            While investment in services sectors is covered by WTO rules, there is currently no equivalent comprehensive multilateral agreement on investment affecting goods. In the mid-1990s, the Organisation for Economic Cooperation and Development (OECD) did attempt, albeit unsuccessfully, to negotiate the Multilateral Agreement on Investment (MAI) for OECD countries. Since then, countries have indicated interest in developing an international accord on investment within the WTO, but no consensus has emerged. Greater support for this initiative, particularly among developing countries, is still required before the negotiations can be launched.

            Investment is one of the new issues that could eventually be included in the multilateral negotiations now underway. At the Doha Ministerial Conference in November 2001, WTO Members recognized the rationale for multilateral frameworks on investment and agreed to establish focused work programs within the Working Group on Trade and Investment on what such frameworks could entail. The decision to launch formal negotiations, based on the usual WTO need to satisfy consensus, would then be made at the Fifth WTO Ministerial Conference in 2003.

            Investment proposals currently under discussion within the WTO’s Working Group on Trade and Investment are clearly different from those contained in the OECD’s unsuccessful MAI and do not include investor-state dispute settlement provisions. Discussion within the WTO has centred on the following rules that might be included in a potential investment deal: non-discrimination, transparency, performance requirements, incentives, transfer of funds, and elements of investment protection. National treatment and market access commitments could be generated in a manner that is similar to the GATS commitment process.

3.     Developing a Canadian Position

            Given Canada’s status as a net investment exporter, it was not surprising to hear testimony supporting the need for investment protection. Don Stephenson of DFAIT observed that the Government of Canada welcomed the inclusion of investment in a WTO negotiating agenda, even if actual negotiations will not be launched until at least 2003. DFAIT would like to see an international agreement include transparency in investment regulation; non-discriminatory treatment accorded to Canadian investors abroad; a right for Canada (and others) to regulate in the public interest; and mechanisms to help ensure that the benefits of FDI can be realized by all WTO Members, including developing countries.

            Clifford Sosnow noted the critical need for investments to be treated fairly (to give businesses confidence) and protected through the rule of law. Recourse to international agreement or arbitration is required, he observed.

            Jack Mintz of the C.D. Howe Institute argued that investor protection was required to restrain governments from treating investors unfairly once capital has been sunk and strategic investments made. If expropriation action was required, then fair compensation should be provided. He did point out, however, that the current climate made it somewhat difficult to obtain a multilateral investment agreement. Instead, achieving a similar result in regional agreements such as the Free Trade Area of the Americas (FTAA) might be the preferred route to take.

            Mark Boudreau of the Canadian Manufacturers and Exporters also expressed pessimism that WTO agreement on investment would be reached any time during this round of negotiation. He attributed this pessimism to the large size of the negotiating forum.

            Mr. Sosnow, during his second appearance before the Committee and representing the Canadian Chamber of Commerce, expressed disappointment that negotiations on investment had been deferred until 2003 at the earliest. The Chamber is strongly in favour of strengthening disciplines to govern investment, and Mr. Sosnow encouraged the federal government to aggressively seek to develop a consensus within the WTO to launch the negotiations.

            Finally, Sergio Marchi informed the Sub-Committee that consensus had been reached in Geneva to exclude any investor-state provisions. He was not aware of any country pushing to have this concept included, with WTO Members preferring to retain sovereignty.

            The investor-state issue, arising as it does out of the NAFTA investment chapter, continues to be of concern to the Federation of Canadian Municipalities (FCM). The FCM is worried that with increasing judicial acceptance of municipal decisions, investors may increasingly resort to trade tribunals for damages.

            It is true that the vast majority of Canada’s external investments are provided with adequate protection through existing agreements such as NAFTA, Canada-Chile Free Trade Agreement, Canada-Costa Rica Free Trade Agreement, and the bilateral foreign investment protection agreements. Other countries have also entered into regional trade liberalization agreements, and over 1,800 bilateral investment protection arrangements have been entered into throughout the world. These bilateral treaties typically provide the same protections as would a multilateral agreement.

            However, the Sub-Committee is of the view that it is in Canada’s best interests to support a comprehensive agreement at the multilateral level. Such an agreement could, among other things, set a uniform standard of minimum investment protections, rationalize existing bilateral treaties and expand coverage of the treaty provisions to those countries with which Canada has no bilateral accord. We therefore recommend:

Recommendation 22:

That the Government of Canada diligently strive to attain WTO consensus on the importance of creating a comprehensive international agreement to protect investment. Investor-state provisions should be excluded from the agreement.

B.     Competition Policy

            At the current time, there is a wide range of private actions that may restrict market access or lead to unfair methods of competition. Competition policy is typically meant to ensure that practices within and among companies (e.g., pricing, mergers, abuse of dominant position) do not undermine competition in the marketplace.

            While much progress has been made at the WTO in eliminating government-imposed barriers to trade at the border, less emphasis has been placed on avoiding the negative effects on trade of private business practices within countries. The need for an international agreement on competition policy at the WTO is, therefore, generally based on the desire to ensure that private anti-competitive practices do not serve to limit trade, and that both producers and consumers are able to gain fully from the benefits of competitive markets. Ultimately, it is the wish of the international community to maximize the benefits realized from trade liberalization.

            Another rationale for dealing with competition issues at the WTO level is the rising international dimension to competition law enforcement. Competition authorities throughout the world are increasingly devoting more of their time and efforts to international cartels and mergers necessitating multi-jurisdictional review.

            The other side to the argument is that the issue of private anti-competitive conduct is greatly exaggerated, and that such conduct would be significantly reduced by a proper application of trade liberalization. Opponents of a multilateral competition policy framework argue that improper imposition of anti-competitive restrictions on firms, through the implementation of WTO competition rules, would not be advisable. What must also be considered is that there is, as of yet, no international consensus on the proper scope and application of competition policy.

            It would appear that support for competition rules is beginning to become evident at the WTO, with developing and emerging economies starting to acknowledge that an international competition framework could support both the introduction of such rules and the enforcement of domestic competition laws. The current reality is that many of these countries do not possess effective and enforced competition laws. Even for those countries that have competition laws on their books, there are often significant differences in their actual impact.

            Competition policy is one of the new issues that could eventually be included in the multilateral negotiations now underway. At the Doha Ministerial Conference in November 2001, WTO Members recognized the rationale for multilateral frameworks on competition and agreed to establish focused work programs within the Working Group on Trade and Competition Policy, on what such frameworks could entail. The decision to launch formal negotiations, based on the usual WTO need to satisfy consensus, would then be made at the Fifth WTO Ministerial Conference in 2003.

            The Government of Canada is of the view that the current dependence on bilateral competition cooperation agreements needs to come to an end, to be replaced (for efficiency and coverage reasons) by a WTO framework agreement on competition policy. At the WTO, Canada has formally proposed a framework policy that would cover the following elements: individual countries’ adoption of sound competition legislation; commitments given to the principles of transparency, non-discrimination and procedural fairness; an advocacy role for the competition authority; the adoption of common approaches to international cartels; mechanisms to improve cooperation between competition authorities; and the provision of technical assistance to developing countries. Under this proposal, competition policy would be left outside the WTO’s dispute settlement process.

            Don Stephenson informed the Sub-Committee that for full benefits to be realized from trade liberalization, there needs to be effective competition laws and regulations in place. However, these preconditions do not exist in many WTO Member states and therefore it is not surprising that there is, as of yet, no consensus on what the minimum standards of competition law should be.

            Mark Boudreau of the Canadian Manufacturers and Exporters expressed pessimism regarding the potential for an agreement on competition policy. He could not envisage the suitability, at this point, of the WTO being involved in the affairs of private companies and observed that including the area of competition in its negotiating framework was perhaps placing an excessive burden on the institution.

            Clifford Sosnow of the Canadian Chamber of Commerce indicated that the issue of competition policy was a highly contentious one, not only in Canada but also in the U.S. and in Europe. He informed the Sub-Committee that the Canadian business community continues to debate this issue and that it was not even clear that there is support for competition law standards being subject to WTO rules. The Chamber urges the federal government to concentrate more on the other three "new" issues (i.e., investment, procurement, trade facilitation) in which there is a much better chance of success.

            Trade liberalization resulting from WTO negotiations can have either a positive or a negative effect on environmental protection. The Sub-Committee was told that trade liberalization and environmental protection can be mutually reinforcing in cases where trade-distorting subsidies and protection encourage environmentally damaging over-production of goods. David Runnalls (President, International Institute for Sustainable Development) testified before the Sub-Committee that it would be very difficult for developing countries in particular to achieve some measure of sustainable development without the capital that would come out of increased access to the markets of the developed world.

            However, trade liberalization can lead to increased rates of environmental degradation. Mr. Runnalls cautioned that merely providing market access does not guarantee specific results. Trade liberalization can lead to increasing rates of environmental degradation, especially in developing countries, if the proper policies are not in place to protect the environment.

            The General Agreement on Tariffs and Trade (GATT) first mandated the study of environmental issues in the early 1970s. At that time, its efforts were focused on the implications of environmental protection policies on international trade. This research topic reflects one of the prevailing issues regarding trade and the environment today — that protection policies could, in fact, become obstacles to trade and could serve as a form of trade protectionism.

            Recognizing the need for further study of environmental issues, at the final meeting of the Uruguay Round negotiations, ministers approved the creation of a new committee explicitly for that purpose. Established in 1994, the ongoing role of the Committee on Trade and Environment (CTE) is "to identify the relationship between trade measures and environmental measures in order to promote sustainable development" and to make appropriate recommendations on that subject.

            The CTE has provided valuable research exploring trade and the environment, and has proved to be a useful forum for sharing information and defining relevant issues. However, prior to the forthcoming round of trade talks, little progress had been made in placing specific environmental concerns onto the negotiating table at the WTO.

            Some witnesses appearing before the Sub-Committee were not disappointed with this apparent lack of progress. Several, including Elizabeth May (Executive Director, Sierra Club of Canada), believe that the WTO is not the appropriate place to resolve environmental problems and disputes. They maintain that trade negotiators lack the necessary environmental expertise to effectively address environmental concerns and make important decisions regarding public policies (such as on environmental protection) solely on the basis of their trade-related knowledge. Furthermore, this lack of environmental capacity at the WTO is seen as unduly influencing the outcomes of WTO trade disputes on environmental issues.

            Failure to make significant progress on placing environmental issues on the negotiation table has been largely a result of the widely disparate views on environmental protection held by the developed world and by developing countries. While relatively affluent countries, particularly those in the European Union (EU), have made environmental issues a clear priority, this view is not shared by all countries. Jack Mintz of the C.D. Howe Institute reminded the Sub-Committee that less developed countries are apprehensive about environmental standards because they view such standards as another form of trade protectionism used by developed countries.

            Furthermore, environmental technologies and upgrades can be prohibitively expensive for poorer countries. Developing nations seldom have the resources at their disposal to engage in environment-related research and development. Furthermore, few believe that they should sacrifice their growth prospects to help solve global pollution problems caused in large part by the lifestyle of richer countries.

B.     Developments at Doha

            Although many countries have traditionally been reticent to open WTO negotiations on environmental issues, the new round of trade negotiations launched at Doha includes a handful of topics concerning trade and the environment. The appearance of environmental issues on the negotiating table represents a significant victory for the EU, the most vocal proponent of such issues.

            Prior to the November meeting in Qatar, the EU had demanded an explicit negotiating mandate to review and clarify the rules surrounding trade and the environment. This demand was opposed almost unanimously by developing countries. Their opposition was echoed by some developed countries as well, including the United States.

            However, a compromise was reached at Doha. In exchange for an agreement on the part of the EU to broach the subject of agricultural subsidies, the new WTO round of negotiations will include two significant environmental issues: trade barriers on environmental goods and services; and negotiations to reconcile the rules of multilateral environmental agreements with the WTO.

            Although the inclusion of environmental issues in the new round of negotiations was a last-minute decision, the Sub-Committee heard that the likelihood of an agreement on the environment is relatively high. David Runnalls told the Committee that the politics of the environment are such that the EU and perhaps event the U.S. cannot come away from the table without an agreement that has some significant environmental concessions. This is particularly the case in Europe where public sentiment is increasingly pro-green. EU negotiators will be pressured from home to reach a deal.

            As part of the compromise between the EU and the U.S., trade negotiations specifically pertaining to the environment will be restricted to the two issues mentioned above. However, the Doha Declaration also calls for the Committee on Trade and the

            Environment to focus its ongoing research agenda on specific issues of concern, including environmental labelling requirements and the effect of environmental measures on market access.

            Witnesses appearing before the Sub-Committee were generally supportive of the notion of further exploring the relationship between WTO trade agreements and the environment. However, a number voiced concerns over the way in which these discussions take place. Elizabeth May testified that CTE discussions are inherently biased in favour of trade issues because they focus on whether or not environmental agreements are disruptive to trade and not vice versa. She maintained that research of this sort casts doubt on the legitimacy of agreements such as the Montreal Protocol, for example, simply by asking the question of whether or not they are WTO-illegal.

            As well, Howard Mann (Consultant and Trade Lawyer) pointed to a disparity between the negotiating points outlined in the Doha Declaration and the work of the CTE. As laid out in paragraph 32 of the Declaration, CTE discussions can produce recommendations to the WTO, but the WTO is under no obligation to open binding negotiations on those points. By contrast, Mr. Mann pointed out that binding negotiations will take place on a number of issues, such as non-tariff barriers, which do not have a direct effect on the environment.

1.     New Negotiations

(a)      Multilateral Environmental Agreements

            How WTO rules relate to trade obligations included in multilateral environmental agreements (MEAs) has been an issue of long-standing concern in a number of countries. Under the current system, a country imposing trade restrictions under an MEA has to prove that it is not violating the WTO by demonstrating that its measures qualify for an exemption under Article 20 of the GATT. Forthcoming negotiations aim to clarify this relationship.

            An MEA is any agreement between two or more signatory countries concerning some aspect of environmental protection. There are approximately 200 MEAs in place today, including the Kyoto Accord and the Montreal Protocol. However, only a small proportion of these agreements, 20 in total, contain trade-related provisions. No trade dispute has ever arisen in the WTO concerning environmental agreements. Nevertheless, uncertainty over the relationship between the two sets of rules has been an issue of growing concern in MEA negotiations, thus resulting in the call for clarification.

            The scope of negotiations will be restricted to the relationship between actual trade obligations in MEAs and existing WTO rules. It does not include measures that a government may take independent of the MEA. According to the text of the Declaration, any results from these negotiations would be binding only on those countries that are signatories both to a given MEA and to the WTO. In other words, a country that has not participated in a specific environmental agreement would not be affected by the results of the negotiations.

            It is generally believed that these negotiations could have two possible outcomes. The first is that the clarification could grant MEAs that contain trade enforcement obligations some measure of protection against WTO trade dispute challenges. On the other hand, negotiations could lead to WTO regulations asserting some degree of control over environmental agreements.

            Don Stephenson of DFAIT welcomed the inclusion of this item on the negotiating agenda. He stated that negotiations on the relationship between WTO rules and specific trade obligations in MEAs will offer an important contribution to promoting coherence in the governance of environmental and trade issues.

            However, many other witnesses appearing before the Sub-Committee were sceptical that an attempt to reconcile MEAs with WTO regulations could yield any positive benefit given the considerable mismatch in power between the two. In fact, witnesses stressed that negotiations on this point would only serve as a strong legal disincentive for countries to ever negotiate future environmental agreements. Since WTO negotiations on this topic would only be binding on countries that were signatories of both the WTO and any specific MEA, participating in environmental agreements would penalize those countries because they would in essence be granting greater trade rights to countries that did not participate.

            Elizabeth May suggested that merely posing the question of whether or not MEAs are GATT/WTO illegal has been sufficient to deter the signing of MEAs with trade enforcement mechanisms. She pointed to the fact that no new environmental agreement with enforcement mechanisms has been signed since the WTO first broached the question of the legality of those mechanisms. She also remarked that Canada’s own position in this area appears to have changed considerably, stating that its leadership role in ensuring that trade sanctions were a part of the Montreal Protocol on the ozone layer stands in sharp contrast to its Kyoto position that no trade sanctions be part of the agreement.

            In general, there appeared to be some consensus among the witnesses appearing before the Sub-Committee that there was no need for the relationship between the WTO and MEAs to be included in any forthcoming trade negotiations. Howard Mann stated that recent decisions at the WTO Appellate Body had produced decisions generally favourable to environmental concerns. He asserted that WTO law had evolved considerably in recent years and that the Appellate Body had already addressed the issue of the relationship of environmental agreements to trade law in a fairly constructive way. According to Mr. Mann, as an issue in the public mind, this debate is a hangover of debates in the late 1980s and early 1990s during which WTO/GATT case law was much different than it is today.

            Howard Mann’s call for Canada to take the issue of MEAs and the WTO off the Doha agenda was echoed by other witnesses. David Runnalls agreed that the WTO had already dealt with this issue through the Appellate Body and that resurrecting an issue such as this was "dangerous and useless." Mr. Runnalls reminded the Sub-Committee that the issue of MEAs and the WTO got onto the Doha agenda as a result of a series of compromises he likened to "big poker games." Mr. Runnalls warned that when discussions begin this way and are undertaken by negotiators with little or no experience in environmental concerns, the outcome is often undesirable as issues are invariably traded off against one another.

            The Sub-Committee recognizes that while there may be some concerns over opening this topic up for negotiations, the inclusion of environmental issues on the negotiating agenda represents, in the words of Don Stephenson, a "breakthrough for the environment." As such, the Sub-Committee believes that it would be premature to dismiss this progress through a refusal to negotiate. However, in light of the testimony received, the Sub-Committee recommends that:

Recommendation 23:

That the federal government urgently examine recent environment-related decisions at the WTO Appellate Body in an effort to determine the extent to which WTO case law has evolved and whether or not there is a pressing need for negotiations on the relationship between the trade obligations contained in Multilateral Environmental Agreements and existing WTO rules.

(b)      Trade in Environmental Goods and Services

            WTO ministers at Doha also agreed to open negotiations on reducing tariff and non-tariff barriers to trade in environmental goods and services. This agreement deals specifically with products used in an environmental capacity, ranging from waste disposal to preventative and cleanup technologies such as scrubbers for industrial plants, water treatment equipment and catalytic converters for cars.

            For the most part, this was viewed as a positive development by witnesses appearing before the Sub-Committee. Don Stephenson applauded the inclusion of this negotiating topic, stating that such negotiations could help protect the environment by making appropriate technologies more readily available. As well, the Canadian Manufacturers and Exporters, in their brief to the Sub-Committee, indicated their support of the WTO pursuing a modest agenda of eliminating tariffs on goods and services used for pollution control devices.

            The Sub-Committee was told that reducing tariffs on environmental goods and services provides a good opportunity for the Canadian environment industry. Christopher Henderson (Executive Member, Canadian Environment Industry Association) informed the Sub-Committee that the environment industry in Canada comprised about 220,000 people in 1998 according to Statistic Canada measurements. That year, the industry earned $22 billion in revenues, about 90% of which was from domestic sales.

            Mr. Henderson stated that the domestic market for environmental products had plateaued, and that producers need to look to export markets in order to continue to expand. Canada’s current share of international trade in environmental goods and services stands at a mere 2.5% of the world market. Considerable opportunities exist in Latin America in the areas of air markets and waste and infrastructure markets, as well as in the improvement of municipal infrastructure through means such as water treatment plants in countries with water shortages.

            The Sub-Committee believes that liberalizing trade in environmental goods has the capacity to improve the level of environmental protection and cleanup worldwide by lowering the cost and increasing the availability of the products and services required to do so. Not only will this enhance the potential benefit of liberalizing trade in environmental products and services, but it will also provide growth opportunities for Canadian businesses as well. However, the Sub-Committee also heard evidence that the ability of Canadian firms to provide product support and other follow-up services is limited by barriers to trade in services, including on the movement of people. We recommend:

Recommendation 24:

That Canada actively pursue at the WTO, the reduction of barriers to trade in the environmental goods and services industry. In negotiating this position at the WTO, Canada should also be mindful of the potential limitations that barriers to trade in services may have on the ability of Canadian firms to offer product support and after-sales services for their environmental products.

            Although witnesses before the Sub-Committee were generally receptive to trade negotiations on environmental products, some expressed concerns about the wider implications of these discussions. For example, the Canadian Federation of Municipalities suggested that the implications of WTO environmental negotiations, and the negotiations on trade in services, could limit the ability of municipal governments to regulate and deliver public services, particularly when public-private partnerships or other commercial elements are involved.

           Environment and trade lawyer Howard Mann acknowledged that he was unsure about the ramifications of negotiations on environmental goods and services on the sale of water. Mr. Mann pointed to the forthcoming negotiations on trade in services as an area which had the potential to force the multinationalization or bilateralization of water services where water flows across borders. However, he stressed that all will depend on the outcome of the current round of negotiations.

            The Federation of Canadian Municipalities (FCM) also expressed concern about the sale of water as it relates to the GATS. The FCM acknowledged that bulk water sales and water services are not currently a Canadian commitment under the GATS, but it is concerned that provisions of the new round of trade negotiations may allow for the bulk sale of water. In its briefing document submitted to the Sub-Committee, the FCM has asked for assurances that water supply services will always be excluded from service commitments under GATS.

            Interpretations of the language of the Doha Declaration have led to widely different conclusions on the status of bulk water sales and water supply services at the forthcoming round of negotiations. The Sub-Committee remains unconvinced that trade negotiations will force open Canada’s water supply to competitive markets. At the same time, however, it recognizes the strong desire of many Canadians that there be no room for ambiguity on the subject. We recommend:

Recommendation 25:

That to eliminate ambiguity on the subject of bulk water exports, the federal government conclusively demonstrate to Canadians its legal understanding of how the Doha negotiating mandate does not compromise its position that no such export from Canada is permitted. Furthermore, Canadian negotiators should ensure that no ambiguity exists on Canada’s position on this subject during the forthcoming round of trade negotiations. Finally, upon the conclusion of the negotiations, the federal government should provide to all Canadians its legal interpretation of any negotiated agreement in order to minimize any further misunderstandings.

2.     Ongoing Environmental Discussions

             The Doha Declaration placed MEAs and environmental goods and services on the agenda in the forthcoming round of trade negotiations. Several other issues related to the environment will be studied in ongoing discussions at the WTO’s Committee on Trade and Environment (CTE).

(a)      Environmental Labelling Requirements

            Among them is the topic of environmental labelling requirements — labels indicating that products meet certain environmental standards. The debate over "eco-labelling" has broadened in the WTO to labels relating not to the product itself, but to the production process as well. Examples include animal welfare labelling and social/ethical labelling. The WTO Committee was instructed to study the impact of eco-labelling on trade and to examine whether or not existing WTO rules impede countries’ eco-labelling policies. This topic is also being addressed in parallel discussions at the WTO’s Technical Barriers to Trade (TBT) Committee.

            The Sub-Committee heard little evidence on this point. This is possibly due to the fact that the consequences of CTE discussions are few. As mentioned above, the CTE has the power to make recommendations to the WTO, but it cannot directly influence actual trade negotiations.

            The evidence that was presented to the Sub-Committee was guarded. Elizabeth May of the Sierra Club believes that on this point, the WTO is "in search of solutions where there isn’t a problem." Ms. May testified to the Sub-Committee that the solution to this and other environmental debates is to improve the relative strength of environmental global governance mechanisms to increase confidence in those organizations.

(b)      Identification of "Win-Win" Scenarios

            Other topics of mandated study for the CTE include the effect of environmental regulations on market access and the identification of "win-win scenarios." In the former case, the research of the CTE will focus on striking a balance between trade and environmental objectives, while concentrating on the concerns of least-developed countries. The latter topic refers to finding situations where eliminating trade restrictions or distortions could benefit trade, development and the environment.

            The Sub-Committee heard of two specific areas where the potential for "win-win scenarios" exists. The first of these is in the area of environmentally damaging subsidies. David Runnalls told the Sub-Committee that there were "countless" such subsidies built into the policies of most governments. He suggested that not only are these subsidies environmentally damaging, but they are also both trade-distorting and WTO illegal. A concerted attempt to identify and eliminate these subsidies would be viewed as positive by both trade economists and environmentalists.

            Mr. Runnalls also suggested that any new agreement on agriculture could have a significant impact on the environment and that the link between agricultural production and environmental stewardship would be a likely negotiating position of the EU. Mr. Runnalls agreed that there is an argument in favour of agricultural subsidies that are environmentally sensible, but cautioned that it would be very difficult to determine which are environmentally sensible and which are not. He warned the Sub-Committee that this might be one of the major challenges facing Canada in this round of trade negotiations.

3.      Environmental Concerns in Other Aspects of the Doha Declaration

            The Sub-Committee heard that while environmental issues were only specifically addressed in paragraphs 31 and 32 of the Doha Declaration, those two paragraphs represent but a small fraction of the Doha statement’s links to the environment. Indeed, witnesses told the Committee that a number of other paragraphs implicitly bring environmental issues onto the table.

            Many other Articles of the declaration also bring environmental issues to the table. Among those mentioned to the Committee were: paragraphs 13 and 14 on agriculture, 15 and 16 on services and market access, paragraph 17 on intellectual property rights, 20-22 on investment and paragraph 28 on fisheries.

            The Sub-Committee was cautioned that all environmental protection laws were also implicitly subject to negotiation because they fall under the category of non-tariff barriers to trade. Howard Mann warned the Sub-Committee that although recent decisions at the Appellate Body of the WTO have been greeted positively by environmentalists for their relatively broad interpretation of environmental concern, a number of countries would like to roll back these advances through negotiations on non-tariff barriers in this round.

TRANSPARENCY AND OUTREACH

A.     Background

·    webcasting most official documents after six months;

·    webcasting the agriculture and services negotiating proposals of Member countries; and

·    organizing symposia to exchange views and information with non-governmental organizations
      (NGO).

            Responding to criticism that these measures were insufficient, Member countries agreed to Paragraph 10 of the Ministerial Declaration, which commits the WTO to making its operations more transparent. This objective is to be attained through more effective and quicker dissemination of information and through a broader outreach program.

            On the latter point, the WTO undertook at Doha to improve the dialogue it conducts with the public (outreach). Efforts to seek input (e.g., the two-day symposium on Issues Confronting the World Trading System held in Geneva in July 2001), to promote an improved public understanding of the WTO and to explain the benefits of a rules-based, multilateral trading system will be continued and improved.

B.      Conflicting Views on the External Transparency Issue

            While progress on external transparency is being made, it is a struggle in that there is no consensus for additional steps. A number of countries remain concerned about the threats to the intergovernmental nature of the WTO of greater openness.

            Opinion is clearly divided on the issue of WTO transparency. On the one hand are those holding the view that greater openness could infringe upon the confidentiality often required in international negotiations, potentially jeopardizing discussions in the process. They also claim that more openness could provide certain groups in society (especially in developed countries) with too much influence and erode the intergovernmental nature of the WTO. According to Warren Allmand of Rights and Democracy, many of the WTO Members opposed to augmenting transparency are not democratic to begin with.

            On the other side are those who believe that the institution should open up even more, so as to be more accountable to the public and to become more aware of public concerns associated with trade and trade liberalization. This view holds that, given these concerns, direct input into trade policy-making from groups representing broad segments of society would be helpful.

            Canada has also been a strong supporter of an expanded outreach program, with emphasis placed on meetings, symposia and workshops with NGOs. It has advocated that a part of the WTO Secretariat budget be allocated to fund regular outreach initiatives.

C.     Parliamentary Involvement

            The WTO has been supportive of such interaction, with its Director General (Mike Moore) consistently welcoming increased involvement by elected parliamentarians on the grounds that they are the representatives of the society at large.

            Fergus Watt (Executive Director, World Federalists of Canada) pointed out that Canadian parliamentarians have been at the forefront of attempts to improve WTO transparency through the inclusion of some kind of parliamentary dimension to the organization. Indeed, interest in the work of the WTO on the part of parliamentarians has been growing. At Seattle, 120 parliamentarians called for the creation of a standing body along the WTO. This was followed up by two parliamentary meetings in 2001: an April session organized by the European Parliament and the June 2001 conference in Geneva on the role of parliaments in the shaping of the world trade agenda (organized by the IPU).

            Additional seminars are planned. Upcoming events include a joint IPU/European parliament conference on trade issues in 2002 and a three-day symposium of both parliamentarians and civil society representatives (the first ever such meeting) hosted by the WTO in April 2002, in which development issues as well as the functioning and financing of the WTO will be discussed.

            It is not yet clear what the optimal structure or mandate of any regular meetings with parliamentarians would be. Mr. Watt pointed out that there are two competing visions of how a parliamentary body ought to look like and what it ought to do. The first is the Geneva-based Inter-Parliamentary Union (IPU) model, under which that organization hosts the meetings (the IPU has already been given observer status at the WTO). This is the structure preferred by the WTO. Alternatively, a more permanent WTO Parliamentary Assembly, similar in nature to that of the NATO Parliamentary Assembly or the Council of Europe Parliamentary Assembly, has been envisaged by many European and Canadian parliamentarians.

            Mr. Watt is convinced that, given the powerful nature of the WTO and its wide-ranging impacts on individual countries, it is critically important that there be a robust parliamentary body to provide political oversight and to serve as a forum for public policy debate on WTO issues. Such an organization, while remaining a consultative, deliberative body only, would follow the negotiations, take positions on issues and either provide advice as an entire body or report back individually to their own countries. It is our view that only a permanent parliamentary assembly would be in position to undertake this mandate effectively. The Sub-Committee recommends:

Recommendation 26:

That the Government of Canada actively and with renewed urgency continue its efforts to achieve WTO consensus on the establishment of a permanent WTO parliamentary mechanism to provide closer association of Members of Parliaments and elected officials with the work of the WTO, and in connecting the WTO with citizens and the global public. Issues to be addressed in designing such a mechanism include: how to structure and finance the organization; how to determine representation; and how to define its institutional links with the WTO.

D.      Internal Transparency and Effective WTO Decision Making

            During the Sub-Committee’s panel session on WTO transparency and outreach, the observation was made (by Warren Allmand) that the negotiation process at Doha had been detrimental to developing countries in that "Green Men" (friends of the WTO Chair Stuart Harbinson acting as facilitators) had replaced the "Green Room", in which only a select few of the world’s developing nations were consulted. According to the witness, these "Friends of the Chair" did not reflect the views of the poorest of the developing countries in the WTO’s final negotiation text.

Recommendation 27:

That the Government of Canada revisit this Sub-Committee’s Recommendation 14 contained in its June 2001 report on Canada-Europe Economic Relations (Crossing The Atlantic: Expanding The Economic Relationship Between Canada And Europe) and work together with like-minded countries to encourage the WTO to craft and employ more formal, efficient and effective decision-making procedures within its organization. Separate procedures should be developed to cover both administrative (i.e., process) decisions and those involving trade issues.

Recommendation 28:

That the federal government propose to WTO Members that the International Labour Organization and the United Nations Environment Programme be allowed to contribute their specialized expertise to the negotiating process.

A FINAL WORD

Recommendation 29:

That the Government of Canada promote the injection of clauses within WTO agreements that would tie countries’ access to the benefits from WTO membership to proven respect for democratic rights.

3    Dumping refers to selling a product in an export market for less than the cost of production or less than the price in the domestic market.

8    Canada’s position is described in a August 2001 DFAIT Information Paper on the Dispute Settlement System, available on the DFAIT Web site at
      the following address: http://www.dfait-maeci.gc.ca/tna-nac/dsu-info-e.asp

     As well, further detail is available in a May 1999 Discussion Paper entitled Canada’s Perspective on the Review of the DSU for WTO and FTAA
       Sectoral Consultations, available on the DFAIT Web site at the following address: http://www.dfait-maeci.gc.ca/tna-nac/discussion/dsu-e.asp

9     One panellist, Daniel Drache (Director, Robarts Centre for Canadian Studies) differed in his assessment, arguing that the DSU was a rather crude
       instrument for resolving trade disputes at the international level.

11   For certain countries, use of the retaliation option carries with it disastrous effects.

13   Detailed information about the ACWL can be obtained from its Web site at: http://www.acwl.ch/ 

14   Together, the EU and U.S. account for a full 94% of all export subsidies.

15    Mr. Friesen called attention to the $110 million in increased funding of market access programs contained in the U.S. Farm Bill.  

16   According to Mike Dungate, an average of only 67% of the minimum access is now being provided by WTO Members.

17   The current base period on which this 5% access rate is applied is 1986-88.

22   At Doha, according to Mr. Allmand, there was a daily briefing and exchange of information by teleconference with those groups
       unable to go, for an hour or two. On the down side, very few NGOs could attend the conference and civil society participation there
       was stifled from the outset. Moreover, many developing-country members found the consensus-making process (consultation on
       draft text, nomination of the friends of the chair, “green men,” as facilitators) not to be transparent, with the views of these countries
       not always reflected in the text of the Declaration.     

23   Not all countries, of course, possess working democracies with parliaments. For these, Mr. Allmand envisages
       direct civil society input into a future assembly of the WTO. The consultation and oversight would, therefore, need
       to follow a two-track process.

24   This meeting was organized by both the IPU and a European Parliament Committee.  

25   Notes for an Address by the Honourable Pierre Pettigrew, Minister for International Trade, to the Quebec Manufacturers and Exporters on
       After Doha: Benefits For The World, December 3, 2001
       (http://webapps.dfait-maeci.gc.ca/minpub/Publication.asp?FileSpec=/Min_Pub_Docs/104749.htm).

26   Government Response To The Fifth Report Of The Standing Committee On Foreign Affairs And International Trade (Crossing The Atlantic:
       Expanding The Economic Relationship Between Canada And Europe), Department of Foreign Affairs and International Trade, 2001, p. 14.

27   For further elaboration on this model, see Jeffrey J. Schott and Jayashree Watal, “Decision-making in the WTO”,
       International Economics Policy Briefs, Institute for International Economics, March 2000.