NEWS RELEASES
MINISTERS WELCOME NAFTA PANEL DECISION
December 2, 1996 No. 229
MINISTERS WELCOME NAFTA PANEL DECISION
Minister for International Trade Art Eggleton and Agriculture and Agri-Food
Minister Ralph Goodale today welcomed the unanimous decision by an international
panel upholding Canada's right to apply tariffs established under the World Trade
Organization (WTO) to imports of certain U.S. agricultural products.
The North American Free Trade Agreement (NAFTA) panel has determined that Canadian
tariffs conform fully with the provisions of the North American Free Trade
Agreement.
The United States had challenged Canada's right under the NAFTA to apply the
tariffs that were agreed to in the WTO Agreements on imports of U.S. dairy,
poultry, egg, margarine and barley products. Canada maintained that this was
consistent with its obligations under the NAFTA and the WTO.
"The government is very pleased with this decisive and unanimous ruling made by
the five panel members," said Mr. Eggleton. "This case underlines the value of
the NAFTA panel process where disputes can be settled on their merits."
"The panel finding is great news for Canada and the country's entire agriculture
industry," said Mr. Goodale. "The close collaboration between federal and
provincial governments and agriculture industry groups was key to the successful
Canadian effort."
Under the WTO Agreement, Canada converted its former quantitative import
restrictions on products such as dairy, poultry and eggs to tariff equivalents.
In its ruling, the panel agreed that provisions in the Canada-U.S. Free Trade
Agreement allowed Canada to maintain quantitative import restrictions against
certain U.S. imports. It also concluded that Canada was obliged to end its
quantitative import restrictions under the WTO Agreement and that Canada had the
right to convert them into tariff equivalents under the WTO and the NAFTA.
The United States officially requested a NAFTA panel on July 17, 1995, beginning
the panel process.
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A backgrounder is attached.
For further information, media representatives may contact:
Nicole Bourget
Director of Communications
Office of the Minister for International Trade
(613) 992-7332
Vern Greenshields
Press Secretary
Minister Goodale's Office
Agriculture and Agri-Food Canada
(613) 759-1020
Steve Verheul
Agriculture and Agri-Food Canada
(613) 759-7653
Media Relations Office
Department of Foreign Affairs and International Trade
(613) 995-1874
This document is also available on Department of Foreign Affairs and International
Trade's Internet site: http://www.dfait-maeci.gc.ca
Backgrounder
The Canadian Position
As required by the World Trade Organization (WTO) Agreement, which entered into
force on January 1, 1995, Canada has converted all quantitative import
restrictions on agricultural products, including those in the supply-managed dairy
and poultry sectors, into tariff equivalents. This multilaterally negotiated
process, known as "tariffication," has also been implemented by the United States
and applied to U.S. imports of Canadian products such as sugar, sugar-containing
products, dairy products and peanut butter.
The tariffication process as implemented by Canada has not reduced U.S. access to
the Canadian market. The tariff equivalents apply only to imports above specified
levels. In the case of products subject to tariffication by Canada, this import
level is equal to or greater than the previous quotas.
The history of the negotiations between Canada and the United States is clear and
it is reflected in the provisions of the agreements. The Canada-U.S. Free Trade
Agreement (FTA) embodied an understanding that improved U.S. access into Canada
for certain supply-managed products but maintained fully Canada's right to apply
border measures in support of supply management. This agreement was incorporated
into the North American Free Trade Agreement (NAFTA) with no further changes in
market access. Both parties agreed subsequently in the WTO to convert
agricultural import quotas into tariff equivalents that would apply to one
another's exports.
World Trade Organization Tariffication
The World Trade Organization Agreement on Agriculture, which came into effect on
January 1, 1995, required all WTO members, including Canada and the United States,
to convert their non-tariff quantitative import restrictions, such as quotas and
discretionary licensing requirements, to tariffs. This process, known as
"tariffication," was intended to provide the equivalent effect of the restrictions
that were replaced.
As part of its WTO commitments, Canada tariffied its import quotas on supply-managed dairy, poultry and egg products. In addition, Canada tariffied its import
licences on barley and barley products, as well as its import prohibition on
margarine. It was clear that these tariff equivalents would apply to all imports
of these products, including those from the United States.
For its part, the United States tariffied its import restrictions on dairy,
sugar, sugar-containing products, peanuts, peanut butter and peanut paste, and
cotton. The United States has applied its tariff equivalents on these products to
imports from Canada.
For each "tariffied" product, WTO members were required to provide access at
lower tariff rates for imports up to specified levels. Only imports in excess of
the specified limit would be subject to the higher tariff equivalents. The access
up to the specified limit is known as in-quota access, and that over the limit as
over-quota access. This import system is referred to as a tariff rate quota
(TRQ).
Under the WTO Agreement on Agriculture, members will reduce tariffs on
agricultural goods by 36 per cent over six years with a minimum reduction of 15
per cent for each tariff line. United States agriculture products entering Canada
within the TRQ are subject to low rates of duty, ranging from 0 to 6 per cent,
which will be eliminated by 1998 as part of Canada's obligations under the FTA and
the NAFTA.
Canada's tariff equivalents on over-quota access range from 25 per cent to 350
per cent, and apply to imports from all countries, including the United States.
The Supply Management System
Supply management in Canada is a system that manages the national supply of dairy
products, chicken, turkey, eggs and broiler hatching eggs by matching total supply
with domestic demand. The effectiveness of the system is dependent on import
controls.
The system benefits the sectors concerned by focussing on the needs of the
domestic market, avoiding surpluses through a balancing of supplies with expected
domestic market needs, progressive gains in productivity, increased specialization
in production and processing and relatively stable producer returns. The system
also provides consumers with a stable and reliable supply of high-quality
products.
Supply-managed commodities represent major sectors of Canada's farm economy,
accounting for about 25 per cent ($6.4 billion) of total farm cash receipts. In
1995, the numbers of regulated producers were: chicken, 2797; turkey, 568; eggs,
1387; and broiler hatching eggs, 319. There were about 24 700 dairy farms
reporting sales in 1995-96.
Canada-U.S. Trade in Dairy, Poultry and Eggs
Trade in dairy, poultry and eggs between Canada and the United States in 1995
totalled $444.6 million. The United States had a trade surplus of $265.2 million
for bilateral trade in these products, and exports from the U.S. accounted for 80
per cent of the value of the two-way trade.
The United States exported $56 million in dairy products to Canada in 1995, an
increase of 141 per cent over U.S. dairy product exports in 1988.
The United States exported $298.5 million in poultry and egg products to Canada
in 1995, an increase of 120 per cent over the 1988 level.
Canada exported $38 million in dairy products to the United States in 1995, and
$51 million in poultry and egg products. These values represent increases of 57
per cent and 63 per cent respectively over 1988 export levels.
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