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A Guide for Canadian Municipalities
Developed in Cooperation with the Federation of Canadian Municipalities
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This Guide is intended to help municipalities
deal with day-to-day questions that may arise regarding provisions
in trade agreements relevant to areas of municipal activity, i.e.,
regulation (e.g. zoning and environmental regulation), government
purchasing, financial assistance and public-private partnerships.
The Guide builds on previous discussions
and collaborative efforts between the Government of Canada
and the Federation of Canadian Municipalities (FCM). In 2001,
the Joint Working Group on International Trade was formed
between the FCM and the Department of Foreign Affairs and
International Trade, now International Trade Canada. The Joint
Working Group was established at the request of the FCM to
provide an on-going forum for discussion on issues relating
to international trade agreements.
In November 2001, the FCM submitted to the
Joint Working Group a document entitled Municipal Questions
Respecting Trade Agreements. The Department provided
a written reply in April 2002, which can be found on its
Trade Negotiations and Agreements
website. To continue with these efforts to
respond to questions from the FCM, International Trade Canada
undertook to prepare the current Guide.
Structure
(pdf)
Part I of the Guide provides a description of the trade
agreement provisions most relevant to municipalities.
Part II of the Guide sets out a series of key questions
designed to assist municipalities in assessing the potential application
of Canada’s trade agreements to their activities. To illustrate
their practical use, the key questions are then applied to example
scenarios provided by the Federation of Canadian Municipalities
(FCM).
Annex A provides a more general history
and overview of the trade agreements
Annex B contains additional detail on NAFTA Chapter 11
regarding investment
Annex C contains Glossary of Terms
Annex D includes Useful Contacts
Annex E includes General Steps in Preparing for Negotiating, Implementing and Managing Free Trade Agreements
Purpose
This Guide is intended for use by municipal officials at a number
of different levels.
Annex A provides an overview of Canada’s trade agreements
while Annex B and Part I provide a more detailed account
of the specific provisions in those agreements that are most likely
to be relevant to municipalities. These sections of the Guide, therefore,
are intended to offer a basic but comprehensive introduction to
our trade agreements. It is hoped that all municipal officials will
find them to be a useful source of information, regardless of their
level of familiarity with the subject area. The Guide is the only
source where key information on our trade agreements is available
in one location.
Part II of the Guide then provides the more focused guidance sought
by the FCM as to when and how specific provisions of those agreements
might apply to the programs and activities of municipal governments.
This section, therefore, is unavoidably more complex and technical.
It takes the reader to the next level of detail, proceeding through a
series of questions designed to help identify which trade agreement
provisions might be applicable in given circumstances. To help illustrate
the practical application of this approach, the questions are used
in example scenarios provided by the FCM as representative of the
types of situations that municipalities might need to address.
Accordingly, Part II is not intended for the casual reader. It
is directed toward municipal officials for use in a selective and
targeted way, helping them to focus in on specific trade agreements
and provisions that should be considered for relevance to a given
municipal program or activity. It is hoped that it will prove to
be a useful and practical planning tool in this regard.
The Importance of Trade Agreements
to Canada
Canada’s participation in international trade agreements
is driven by a fundamental reality: we must look outward for our
prosperity, given that we have an abundance of production in natural
resources, manufactured goods and services but a relatively small
domestic market. This means it is critical for Canada to gain access
to foreign markets and investment and secure that access through
enforceable rules.
It has been in recognition of this reality that successive Canadian
governments pursued:
the first modern trade agreement with
the United States concluded in 1935; the first major multilateral trade agreement,
the General Agreement on Tariffs and Trade (GATT), which
entered into force in 1948; eight subsequent rounds of negotiations
under the GATT to further liberalize trade, including
the Uruguay Round which established the World Trade Organization
(WTO) in 1995; the Canada-U.S. Free Trade Agreement (FTA)
concluded in 1987; the North American Free Trade Agreement (NAFTA)
entered into effect with the United States and Mexico
in 1994; and, bilateral Free Trade Agreements with Israel
(1997), Chile (1997) and Costa Rica (2002).
The initial focus of our trade agreements, particularly
with the GATT, was on removing barriers to trade in goods,
such as tariffs and quantitative import restrictions. In more
recent years, the focus, at both the multilateral and bilateral
levels, has shifted towards trade liberalization and the establishment
of a rules-based system for services, intellectual property,
investment and non-tariff barriers.
On services, the Uruguay Round resulted in the conclusion of the
General Agreement on Trade in Services, or GATS, the first multilateral
framework aimed at reducing existing barriers to trade in services
and preventing new barriers from being erected in the future. The
Uruguay Round also saw the negotiation of the first binding agreement
on the protection of intellectual property rights (TRIPS), a critical
asset in the new knowledge-based global economy. The NAFTA contains
similar provisions on services and intellectual property and deals
with the protection of investment. Canada also has negotiated over
20 bilateral Foreign Investment Protection Agreements (FIPAs).
In the area of non-tariff measures, multilateral agreements dealing
with standards and technical regulations also have been negotiated.
The Agreement on Technical Barriers to Trade (TBT), the successor
to the GATT Standards Code, was strengthened during the Uruguay
Round and a new Agreement on the Application of Sanitary and Phytosanitary
Measures (SPS) was concluded.
Work to expand the benefits of the international
trading system continues on a number of fronts. In November
2001, a new round of multilateral trade negotiations was launched
at the 4th World Trade Organization (WTO) Ministerial
Conference in Doha, Qatar. Ministers agreed to continue negotiations
on trade in agriculture and services and begin negotiations
to further liberalize trade in non-agricultural goods, to
strengthen rules on subsidies, trade remedies, and dispute
settlement, and to negotiate on certain aspects of trade and
the environment and intellectual property rights. More information
on the current WTO negotiations can be found at
www.wto.gc.ca.
Canada also is participating in the negotiations towards a Free
Trade Area of the Americas (FTAA). Formally launched in April 1998,
the negotiations are being conducted by the 34 active members of
the Organization of American States (OAS). The FTAA negotiations
hold the potential to create the world’s largest free trade
area with over 845 million people and a combined gross domestic
product of more than $18.8 trillion. The FTAA will build on Canada’s
existing free trade ties with the U.S., Mexico, Chile and Costa
Rica by securing further improvements in market access for goods
and services and stronger protections for investment throughout
the hemisphere. More information on the FTAA negotiations can be
found at www.ftaa.gc.ca.
Canada participates in these agreements and ongoing negotiations
for a simple reason: it is in the Canadian interest to do so. The
benefits include a clear and stable framework to conduct business,
secure access to markets for Canadian exporters, protection for
Canadian investors abroad, access to greater choices and better
prices for Canadian consumers, and increased productivity and efficiency
for the Canadian economy. This all contributes to a higher standard
of living for Canadians as well as our trade and investment partners.
There is ample evidence of this. For example, since the GATT came
into effect in 1948, global trade has increased more than a hundredfold.
For Canada, total two-way trade in goods and services reached more than
$929 billion in 2004 or $2.5 billion every day. From 1993 to 2004,
our merchandise trade with the U.S. and Mexico more than doubled to
reach a level of over $573 billion annually. Total foreign direct
investment in Canada rose to nearly $368 billion in 2004, surpassed
by Canadian direct investment abroad of $438 billion. An estimated
one in four Canadian jobs is linked in part to exports with Canada’s
total exports of goods and services representing about 38 per cent
of our gross domestic product.
While obtaining these very substantial benefits, Canada has not
given up any of our core values or policies. Canada retains the
right to regulate in the public interest, including in areas such
as public health and safety, education, social services and the
environment. Canada also will safeguard the right of all countries
to promote and preserve their cultural diversity.
Of course, there continue to be protectionist pressures around
the world and Canada is sometimes affected by actions against our
exports. Canada’s trade agreements cannot always prevent such
actions, but they do provide us with binding dispute settlement
procedures to defend our interests. This is particularly important
for countries that might otherwise not have the political clout
to challenge unfair trade measures.
The Benefits for Municipalities
Municipalities share in these benefits and protections in a very
real way. The vast majority of Canadian exporters are small and
medium-sized enterprises. They, along with larger Canadian corporations,
are based in municipalities across the country. Trade gives these
Canadian businesses access to larger markets for their products
and services and more varied sources for cost-effective inputs,
technology and investment. This, in turn, delivers increased efficiency,
productivity and competitiveness, all of which translate into jobs
and higher incomes for municipalities’ citizens.
As trade agreements support Canadian businesses in obtaining these
advantages, they also help support the economic and social foundations
of municipalities. While sharing in the benefits, however, municipalities
are not always subject to the requirements of those agreements.
As will be seen in the Sections that follow, various exemptions,
exceptions and reservations in our trade agreements mean that their
provisions do not apply to many measures taken by municipal governments.
This includes, for example, government procurement, measures taken
in the exercise of governmental authority, and certain measures
relating to social services and minority or aboriginal affairs.
There may nevertheless be instances in which certain provisions
of our trade agreements become relevant for municipalities. In these
instances, however, the requirements are not onerous or unduly restrictive
in terms of the exercise of municipal authorities. Greater detail
is provided in other sections of the Guide on the specific instances
where municipalities may be subject to these requirements. In general,
however, as long as certain key concepts and principles that underlie
our trade agreements are taken into account, municipal measures
are unlikely to be adversely affected or subject to challenge.
Core Obligations and Principles
The basic principles of most trade agreements are straightforward
and likely already reflected in how municipalities do business.
They essentially call for non-discrimination and fairness.
Most-Favoured-Nation treatment (MFN) is one of
the core obligations found in trade and investment agreements. It
generally applies to a wide range of measures and activities, including
those that affect trade in goods and services as well as investment
and intellectual property rights.
Where it is applicable, it essentially means that Canada may not
discriminate between its trading partners. In the language of the
agreements, Canada must grant to the businesses of one foreign country
no less favourable treatment that it accords "in like circumstances"
to businesses of any other foreign country. Similarly, Canada must
treat products and services of one foreign country as it treats
"like" products and services from any other foreign country.
In other words, investors and service providers from one of Canada's
trading partners must be treated no less favourably than investors
or service providers from another.
National Treatment is another core obligation. In
the context of the trade in goods, this obligation essentially means
that Canada must treat imported and locally-produced goods equally,
provided they are alike. Similarly, Canada must treat “like” foreign and local services equally. As for foreign businesses, Canada
must grant treatment that is no less favourable than it accords,
in like circumstances, to domestic businesses.
The agreements also contain a variety of principles to encourage
fairness.
Transparency provisions exist in most of our trade
agreements, which call upon governments to make information concerning
domestic laws, regulations, programs and administrative procedures
readily available to domestic and foreign businesses.
Fair and equitable treatment is also a requirement
found in various trade agreements as part of the guarantee to provide
a minimum standard of treatment to foreign investors. This principle
includes the duty to grant due process to foreign investors, ensuring
that the treatment of an investment cannot fall below treatment
considered as fair and equitable under generally accepted standards
of customary international law.
Best Practices for Municipalities
The application of these core obligations and principles is consistent
with the way that Canadian municipalities already treat businesses
in their communities. In other words, while international trade
obligations create additional considerations that municipal governments
must take into account, to the extent that municipalities' regulatory
practices are transparent and non-discriminatory the chance of trade
issues arising is greatly minimized.
While other core obligations apply, ensuring that regulations and
measures are transparent and non-discriminatory is thus the simplest
way to reduce the risk of trade issues arising.
The first basic question that a municipality will want to pose
to itself is whether any of its measures are discriminatory on the
basis of nationality:
Is a municipal measure treating locally-produced goods, services
or businesses more favourably than their foreign counterparts/equivalents?
Or
Is a municipal measure favouring goods, services or businesses
of one trading partner more favourably than those of another trading
partner?
Ensuring that regulations and measures are transparent and non-discriminatory
is thus the simplest way to reduce the risk of trade issues arising.
Should there be measures that are not in
keeping with the core obligations and principles of non-discrimination
and fairness outlined in the above
section, then municipalities should examine whether the
various exemptions, exceptions and reservations apply. These
exemptions, exceptions and reservations apply to many measures
taken by municipal governments. This includes, for example,
government procurement, measures taken in the exercise of
governmental authority, and certain measures relating to social
services and minority or aboriginal affairs.
In addition, when undertaking activities such as zoning, setting
standards or providing subsidies, municipalities will also want
to ensure that, as appropriate and where applicable, their actions
are consistent with obligations regarding issues such as
certain
specified trade related performance requirements,
compensation requirements
for expropriation or the
creation of unnecessary or disguised barriers
to trade. Where these obligations may be applicable to a municipality’s
activities, the relevant provisions are reviewed in detail in the
respective sections of this guide.
This guide is designed to assist municipal officials in better
understanding the core principles of non-discrimination and fairness
referred to above and in better navigating the applicability of
trade agreements to municipal activity. Specifically, detailed information
on the obligations as well as the relevant exemptions, exceptions
and reservations is outlined in Part I of this document. Part II
of the document provides further detail and a step by step guide
to determining the applicability of the trade agreements to four
areas of municipal activity:
- financial assistance
- government procurement
- public-private partnerships and
- regulation e.g. zoning and environmental
regulation)
This guide does not, however, provide legal advice and the applicability
of trade provisions and the related exemptions, exceptions and reservations
to municipal measures will need to be assessed on a case-by-case
basis. Municipalities should seek legal advice, as appropriate.
This document is provided for information purposes only and does
not in any way constitute legal advice or represent legal interpretations by the
Government of Canada. Municipal measures would need to be assessed on a case-by-case
basis. Municipalities should seek legal advice, as appropriate.
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International Trade Agreements and Local Government
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