Canada's Trade Record Spotty

December 18, 2000

Canada's trade and investment regime is among the world's most transparent and liberal, but there also are persistent barriers in a few important areas including agriculture, says a new WTO report on the trade policies of Canada. Reaping the fruits of a generally outward looking environment, both trade and investment flows have continued to expand rapidly since Canada's previous trade policy review in 1998. Barriers persist in certain agri-food industries, textiles and clothing, and some services activities, notes the report.

In agriculture Canada seeks on the one hand improved market access, export subsidy elimination, and reduced trade-distorting domestic support, while on the other it wishes to preserve its right to operate "orderly marketing systems" in the wheat, dairy, poultry and egg sectors. Under the WTO dispute settlement mechanism, Canada has been involved as a complainant in various cases seeking to preserve market access for its exports (e.g., beef, and salmon). Concurrently, a number of long-established Canadian sectoral support programs have been challenged under multilateral rules, including those for dairy exports.

The WTO report stresses that for goods, tariffs are the main trade instrument. The tariff regime offers duty-free entry to over 90% of imports, either under most favored nation or preferential rules, resulting in a trade weighted average tariff of only some 0.9%. By contrast, the simple MFN average tariff stands at 7.1%, while the average on dutiable items is some 13% due to the higher tariff applied to a number of sensitive products including vegetables, cut flowers, sugar, wines, textiles, clothing, footwear, and ships, many of which are of export interest to developing countries.

Canadian producers have continued to seek protection against imports through anti-dumping (AD) actions; 85 definitive AD duties were in force in mid-2000 making Canada one of the most intensive AD users. Exports from some 35 partners are affected, 58% of which cover steel products. About 16% of AD measures have been in place for ten years or more.

The report points out that a number of quantitative restrictions are maintained to protect domestic producers against foreign competition. Canada has taken unilateral liberalizing steps in textiles and clothing but import quotas impose significant restrictions to certain products, some of great interest to developing countries. Tariffs on products subject to tariff quotas (TQs) ranging to over 300% in the dairy and poultry industries continue to amount to de facto quantitative restrictions. By shielding those industries from market opening, TQs are perpetuating inefficiencies at the cost of Canadian consumers, and denying trade opportunities to more efficient foreign producers.

Market distortions may arise from local-content requirements in place at federal or provincial level, says the report. The first apply in the "cultural" subsectors and under the Auto Pact; recent WTO panels found that in both cases certain schemes were inconsistent with multilateral rules. Provincial local-content requirements apply to wine production, and wood and mineral processing. In three provinces, local wines benefit from less restrictive marketing conditions than foreign products.

Although Canadian assistance to agriculture remains minor relative to other large agricultural exporters, it can but compound the problem of subsidies and market distortions affecting world markets, says the WTO. Federal financial transfers to non-agricultural sectors include grants and direct investment schemes, one of which was found by a panel to provided WTO-inconsistent subsidies to the regional aircraft industry.