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Opening Doors to the World:
Canada's International Market Access Priorities 2000

6. Opening Doors to Asia Pacific

Asia-Pacific Economic Cooperation (APEC)

APEC's trade agenda has evolved since its inception in response to developments in world trade. APEC ministers and leaders will continue to act as an informal caucus in support of strengthening the multilateral trading system. In the declaration that came out of the APEC Economic Leaders' Meeting (AELM) held in Auckland, New Zealand, in September 1999, leaders called for a new round of WTO negotiations that would include comprehensive market access negotiations, as well as the abolition of agricultural export subsidies and unjustifiable export prohibitions and restrictions. Leaders also underlined the fact that no APEC member has retreated into protectionism as a response to the financial crisis, which is the best demonstration of how deeply their commitment to open economies is entrenched. At Auckland, the ministers recognized the extraordinary potential of e-commerce and declared that the primary role of the public sector is to ensure a favourable regulatory environment for e-commerce, paying particular attention to the needs of consumers and small business.

While rule-making and liberalization in future WTO negotiations will be the key means by which APEC member economies will progress towards the goal of free and open trade and investment by 2010/2020, APEC leaders have not ruled out the pursuit of WTO-consistent bilateral or regional free trade agreements as an additional way to reach this goal.

APEC will focus on strengthening its work in the area of trade facilitation. Individual elements of APEC's trade facilitation work program may not grab headlines; however, a 1997 APEC study concluded that current commitments by member economies to facilitate intra-APEC trade will have a greater impact on reducing costs and increasing GDP than their current commitments to liberalize trade. A recent 1999 study concluded that APEC trade-facilitation measures committed to date would expand the region's GDP by US$46 billion, whereas liberalization commitments would contribute to GDP expansion by US$29 billion.

The areas of trade facilitation on which APEC is actively working include standards and conformance and customs procedures. This ongoing work in trade facilitation will continue to make regional trade easier and less costly. It will improve the stability and predictability of the business environment and generate new opportunities for networking and partnerships.

In 1999, APEC:

Devel oped an agreement on APEC principles to enhance competition policy and regulatory reform.
Established a MRA on conformity assessment of electrical and electronic equipment.
Completed an APEC directory on professional services.
Developed an APEC website on Y2K for information exchange and preparedness tool kits.
Completed a study on the development of an APEC food system.
Published a study on e-commerce adoption by SMEs in APEC Member economies.
Supported eight specific steps to take the region closer to an open market in air services.
Published International Commercial Disputes: a Guide to Arbitration and Dispute Resolution in APEC Member Economies, 1999.
Published Competition Law for Developing Countries.
Updated the hardcopy and internet versions of the APEC Guidebook on Investment Regimes.

In 2000, Canada will be looking to develop a comprehensive initiative to strengthen trade facilitation in APEC, consistent with the direction provided by APEC leaders at Auckland, with a view to expanding opportunities for Canadian business in the region. In addition, Canada will continue to strengthen APEC's policy dialogue and capacity-building in the area of social policy and structural adjustment. Canada plans to continue to promote meaningful public engagement in APEC, including through dialogue with civil society organizations, in order to build popular support for the economic reforms needed to sustain regional growth and prosperity.

All APEC documents are available on the Internet at www.apecsec.org.sg

Japan

Overview

Japan is Canada's third-largest trading partner (after the United States and the European Union), with 2.55 percent of total exports, and is the fourth-largest foreign direct investor in Canada. Canada is a leading supplier to Japan of a number of key products, such as coal, uranium, canola seed, lumber and prefabricated housing. Canada is also becoming an increasingly important source of a range of sophisticated, high-tech products imported by Japan. Japan is a major source of portfolio investment in Canada, and recent indications are that Canadian direct investment in Japan will increase in response to deregulation and market opportunities in the Japanese economy.

In 1999, Canada's total merchandise trade with Japan increased 3.3 percent to $19.8 billion. Exports declined 3.2 percent to $9.2 billion and imports increased 9.7 percent to $10.6 billion resulting in an increase in the bilateral trade deficit. Canada exported $1.4 billion in services and imported $1.1 billion in 1999. Despite the present recessionary climate, the long-term trend in Japan is towards a growing demand for cost-competitive imports, which represents an important market opportunity for Canadian exporters.

Through Canada's Action Plan for Japan, business and all levels of government are cooperating to take advantage of market opportunities in five high-growth sectors: agri-food and fisheries; tourism; information technology; building products; and health care/medical devices. The action plan also draws attention to new opportunities that have been created in the Japanese market through continuing structural economic change, deregulation and changing consumer tastes -- opportunities in sectors such as the environment, space, new energies and electricity and education. The action plan alerts Canadian industry to changing market conditions in Japan and encourages them to adapt their product to the Japanese market.

In September 1999, the largest bilateral visit between Canada and Japan occurred when a Team Canada trade mission visited Tokyo and Osaka. The mission was led by the Prime Minister and included provincial premiers, territorial leaders, 269 business persons and other Canadian representatives. This first-ever Team Canada visit to a major industrialized country focussed primarily on bilateral trade, but was complemented by a variety of other issues, such as peace and security, official development assistance, Arctic science, space R&D, social policy research, social security and culture.

The Team Canada mission emphasized the strengths of Canada's high-technology sector in an effort to "re-brand" Canada in Japanese minds as a technologically-sophisticated society, and sought to encourage a diversification of our traditional commodities-based trade relationship.

In all, the Team Canada mission facilitated 34 business contracts worth more than $450 million, many of which were in the high-technology sector and involved SMEs. The mission was very well-received in Japan, was seen as a timely show of confidence in Japan's economic future and was well-covered by the Japanese media.

DFAIT, the provinces and the territorial governments, with the support of the Japan External Trade Organization (JETRO), have undertaken a series of cross-Canada seminars and other activities to build on the momentum generated by the Team Canada mission.

Managing the Trade Relationship

Canada and Japan continue to promote trade development and economic cooperation under the 1976 Framework for Economic Cooperation and the Joint Communique announced during the September 1999 Team Canada mission led by Prime Minister Chrétien. The Joint Communique confirmed the intention of the two governments to promote regulatory cooperation with a view to facilitating trade in regulated products. It also welcomed the interest expressed by the private sector in undertaking a study of bilateral trade and investment opportunities.

During the Team Canada mission, Minister Pettigrew met with his counterpart, Minister Yosano, to review the bilateral economic relationship. He also met with Hirochi Okuda, Chairman of the Toyota Motor Corporation and concurrently also Chairman of the Japan-Canada Economic Committee of the Keidanren, to discuss strengthening the economic relationship. In addition, he met with JETRO Chairman Hatakeyama. These organizations are instrumental in strengthening the economic relationship between Canada and Japan.

While trade-policy meetings provide a comprehensive view of the trade and economic relationship, they are complemented by regular issue-specific talks conducted by government departments and agencies in Canada and Japan, in such sectors as telecommunications, culture, building product standards, environment, tourism, air services, oilseeds and transportation, to note a few. The range of meeting themes is indicative of the depth of the economic and trade relationship with Japan.

Both Canada and Japan also welcome and encourage private-sector initiatives to improve trade relations, including the annual Canada-Japan Business Conference, to be held in May 2000, and the annual Canada-Japan Forum, last held in Ottawa in October 1999.

Following up on preliminary discussions between Prime Ministers Chrétien and Hashimoto, the Japanese Ministry of International Trade and Industry (MITI) initiated a study, entitled "The Future of the Japan-Canada Economic Relationship", funded by JETRO and undertaken by Professor Wendy Dobson of the University of Toronto's Institute of International Business. In seeking to find and examine ways to strengthen and broaden the trade and investment flows between Canada and Japan, the study found that both countries were falling short of realizing the full potential of their relationship. The report called upon both governments to take further liberalization measures and called upon the private sector to become engaged in reinvigorating the bilateral relationship. The study found that the Japanese perceive Canada as a source of resource products and that Canadian companies perceive the Japanese market as excessively challenging.

The Canada-Japan Business Council (CJBC) has indicated its intention to carry out a follow-up review of bilateral trade and investment opportunities and to submit reports with recommendations to its next meeting, scheduled for May 2000 in Japan. The Canadian government welcomes this initiative and looks forward to receiving the views of both private sectors on ways as to how the economic relationship between Canada and Japan can be reinvigorated and strengthened.

Canada is seeking clarification that modifications to the government telecommunications organizations included in the WTO AGP, which Japan has proposed, are consistent with the agreement, and that access will be maintained for Canadian telecommunications suppliers.

Market Access Results in 1999

Japan revised the Japan Agricultural Standards (JAS) Law allowing foreign organizations to obtain Registered Certification Organization (RCO) and Registered Grading Organization (RGO) status.
Japan approved the import of all varieties of Canadian tomatoes and agreed to discontinue variety-specific testing for Canadian tomatoes.
Substantial reform, deregulation and restructuring of Japan's financial services sector resulted in Canada's largest-ever single investment in Japan.
A new JAS product standard improved access conditions for Canadian plywood.
Japan moved forward with replacing the system of building product testing and approval based on section 38 of the Building Standards Law toward the new system of foreign recognized evaluation bodies and recognized approval bodies.
Japan continues to move toward increased adoption of international (ISO) standards for building products.
Japan discontinued the Dairy Genetics Subsidy Program, which will improve access for Canadian bovine semen.

Canada's Market Access Priorities for 2000

reduction of duties applied to vegetable oils (particularly canola), processed foods, forest products (newsprint, spruce-pine-fir lumber, softwood plywood, laminated veneer lumber, oriented strand board and laminated beams), red meats, fish, non-ferrous metals and leather footwear;
elimination of specific technical and regulatory barriers in Japan to facilitate Canadian exports in such priority sectors as agri-food and building products;
continued participation in Japan's official consultation process and identification of domestic regulatory impediments that limit economic growth or add unnecessary costs to business and consumers; and
Canada and Japan will begin to negotiate a bilateral agreement on cooperation in competition policy.

Improving Access for Trade in Goods

Agri-food, Fish and Beverage Products

Japan is the world's largest net importer of agri-food, fish and beverage products. In 1999, Canadian agri-food and fish exports to Japan declined 19.4 percent to $165 million. Canada seeks further access to this important market and has concerns with Japanese measures regarding tariffs, safeguards, GMO environmental field testing, labelling of food derived from GMOs, and import requirements and subsidies regarding plant health. In many cases, Japan maintains that its policies conform to the commitments made at the Uruguay Round of negotiations and that any further tariff reduction or market access concessions will be considered in the context of WTO negotiations.

Safeguard Measures on Chilled and Frozen Pork

Canada remains concerned about the administration of Japanese safeguard measures on pork in the form of an increased minimum import price and higher tariffs, which restrain growth in chilled and frozen pork imports. Since they were first triggered in 1995, the safeguards have been of significant concern to the Canadian pork sector. As currently administered, these measures create considerable uncertainty for Canadian suppliers and Japanese importers. Canada is seeking a resolution that addresses the concerns of both exporters and importers in eliminating the negative market impacts of the safeguard. This will be a priority in the WTO negotiations.

Tariffs on Canola Oil

Japan's duties on imported cooking oils are applied on a specific rate basis, i.e. a certain number of yen per kilogram. Despite the specific rates having declined approximately one-third since completion of the Uruguay Round (to ¥10.9 per kilogram for crude oil and ¥13.2 per kilogram for refined oil as of April 1, 2000), these rates ensure that as market prices decrease, the effective tariff barrier to imports remains constant. Due to the low product prices experienced in the early months of 2000, the ad valorem equivalent of this tariff has been in the range of 24 percent to 32 percent. These very high tariffs are designed to heavily protect Japan's domestic oil-crushing industry and other related products such as margarine.

Acceptance of Transgenic Canola

Canola seed is Canada's largest agricultural export to Japan, with shipments in 1999 valued at $590 million. Transgenic technology refers to the introduction of a new trait, such as herbicide tolerance or the enhancement of nutritional quality, through the insertion of a gene from another species into the canola plant. Transgenic canola is the first genetically altered, Canadian-grown crop to be put forward for approval in Japan. New varieties are subject to approval by Japan on the basis of environmental, food and feed safety guidelines. Japan approved the importation of three varieties of transgenic canola in 1996, and subsequently extended the approval to conventionally derived progeny of approved transgenic lines. Seven transgenic varieties of canola were approved in 1997 and 1998. In 1999, three varieties were approved and a fourth has received the necessary environmental and food approvals, but is awaiting feed approval.

The Japanese approval process remains a concern, and could pose delays in the acceptance of subsequent transgenic crops, whether they be canola with additional GM traits or transgenic traits in other crop species. The multi-step Japanese environmental clearance system recognizes North American clearances and allows a plant to enter the Japanese system at a higher level; however, the current process entrenches a gap of 18 months between North American commercial clearance and Japanese import clearance. Environmental field testing should not be required for GM varieties that are intended only for processing in Japan, particularly when these traits have already undergone environmental field testing in other varieties of the same species.

Japan has three separate approval systems (feed, environmental and food). Currently, the feed and environmental approval processes do not distinguish between the canola subspecies brassica napus and brassica rapa. Canada will continue to make efforts to persuade Japan that these subspecies should not be distinguished in the food safety approval process.

Labelling of Food Products Containing Genetically Modified Organisms

In August 1999, Japan announced that it would subject 30 food products, including soybeans, corn, potatoes and products made from these, to mandatory labelling for GMO content. Japan, believed to be the world's largest importer of GMO foods, relies heavily on imports from nations such as Canada to meet food requirements.

Japan's Ministry of Agriculture, Forestry and Fisheries (MAFF) has adopted a pragmatic approach based on currently available methodology: if protein markers or DNA of GMOs are detectable by existing analytical methods, the item will require labelling. Highly processed products including refined oils (such as canola) with no DNA or protein content -- and thus no means of detection -- would not, at this time, require labelling. The labels will apply to foods that are deemed to be "substantially equivalent" in use, composition or nutritional value, and are therefore being used to describe the process, rather than the product. Japan has not indicated a minimum level of GMO content, so generally, foods could be labelled as non-GMO provided that they are certified to have been segregated from GM crops in production and distribution systems.

The potential impacts of this measure are not fully evident at this time. Many issues remain to be determined, including the scope of the labelling scheme, the extent to which it will be exercised on new products and whether or not it will be expanded to include other GM crops. Canada has raised concerns about Japan's labelling approach, both bilaterally and in the WTO Committee on Technical Barriers to Trade.

Mandatory labelling will take effect in April 2001, one year after Japan is scheduled to revise the Japanese Agricultural Standards. Canada will continue to follow the issue closely and will make representations, where appropriate, to ensure that Canada's reputation as a supplier of safe and nutritious food is not jeopardized, so that access for Canadian foodstuffs is preserved.

Variety-specific Testing of Tomatoes from Canada

Japan had required that tomatoes be approved for importation on a variety-specific basis. The scientific basis for such an approach is questionable. Variety-specific testing is not only expensive, but also delays the introduction of new varieties into the marketplace. This is particularly problematic for commercially grown tomatoes, as new and improved varieties are constantly being developed for commercial use. For example, after seven years of bilateral discussions and testing, Japan removed the ban on imports of seven varieties of Canadian tomatoes in September 1997. Of the seven varieties, only one remained in commercial production.

In June 1998, Canada presented to Japanese officials all of the requisite scientific technical data for five new varieties. Japan delayed in providing final approval. In 1999, Canada made high-level representations, pressing not only for the approval of the five additional varieties, but more broadly for elimination of the requirement for approval of new tomato varieties. As a result, in September 1999, Japan announced the end of the requirement for variety-specific approval for Canadian tomatoes, thus resolving the issue.

Fish Feed in Airtight Containers

The Japanese customs tariff allows duty-free importation for fish and other animal feed imported in "airtight container not more that 10kg each". Larger containers and those considered not to be "airtight" are subject to a duty of 36 yen/kg (reduced from 40 yen/kg on April 1, 2000). Officials are examining whether there is unjustified discrimination in the form of a more onerous definition of "airtight" being applied to imported products than to Japanese products.

Live Oyster Exports

In response to a specific request from oyster producers in British Columbia, CFIA officials have been negotiating with their Japanese counterparts to allow the export of live oysters to Japan.

CFIA has conducted specialized testing and has provided data to Japanese officials. Japan conducted an on-site visit in British Columbia in December 1999. CFIA officials are now working toward completing a final arrangement with Japan in early 2000.

Greenhouse Peppers

The Canadian greenhouse vegetable industry, particularly in British Columbia, is developing markets for its products in Japan. In January 1999, Canada presented arguments in favour of the recognition of a pest-free area in British Columbia. Technical discussions with Japan are scheduled to begin in 2000.

Hay

In December 1998, Japan approved an import protocol for fumigated hay from Canada. Japan's concern is the introduction of the Hessian fly, which is also a pest of rice. The Canadian hay industry wants to pursue the approval of a heat-treatment protocol, which is deemed to be more economical than fumigation. Although the first trials were inconclusive, the heat-treatment method has been refined and tests have resulted in 100 percent elimination of the pest. Canada will present Japan with the heat-treatment protocol as revised by the industry.

Building Products and Housing

Early implementation in 1999 of amendments to the Building Standards Law to introduce aspects of a more performance-based (rather than prescriptive) building standard promises to bring great benefit to Canadian exporters. Further liberalization and deregulation with respect to building products would benefit both Japanese consumers and Canadian suppliers of wooden building materials. To this end, Canada and Japan continue their cooperation through mutual recognition of standards, the exchange of test data for building products and joint reviews of construction methods.

Canada will continue to consult bilaterally with Japan on the revision of its building codes to aid Japan's objective of stimulating improvements in the quality of housing stock and to facilitate Canadian exports of building materials. Specifically, Canada is working to remove further restrictions on wood-frame construction -- for example, through revisions to fire codes to ensure that test methods and test criteria are transparent and to allow foreign organizations to become recognized approval bodies.

Removal of Restrictions on Three-Storey Wood Frame Construction

After the 1997 revisions to Japan's building codes, three-storey wood frame construction is now allowed in quasi-fire protection zones (QFP), but is restricted to a maximum of only 1,500 square metres, requires severe property line setbacks and requires limiting distance calculations for exterior wall openings. Overall, these restrictions severely limit the use of three-storey wood construction in QFP. There is also a size limit of 3,000 square metres for non-QFP. Wood cannot be used in the construction of special buildings like hotels.

One of the main obstacles to reform resides in Japan's approach to fire codes. The majority of fire performance codes and standards have not been affected by the recent amendments to the Building Standards Law (BSL), which introduced performance-based standards related to structural aspects of a building. As a result, many aspects of the BSL relating to fire remain prescriptive, limiting wood construction and rendering wood-frame buildings less economical. Given new building designs, fire prevention and fire-fighting techniques, Canada believes the BSL as it relates to fire should also move to performance-based standards.

Canada encourages the Japanese government and the agencies responsible for fire-related issues to:

develop performance-based fire-protection standards aimed at fire prevention and controlling spread of fire, both from internal and external sources;
develop performance-based fire escape standards;
ensure that these standards are based on sound scientific evidence and adapted for the specific and unique circumstances of buildings in Japan;
examine alternative fire-prevention and fire-spread designs which would include sprinkler systems and other international practices, such as the use of fire walls; and
move to implement new performance-based fire protection standards within five years.

Revision of Japan Agricultural Standards (JAS)

Under the new MAFF system of scheduled and periodic review, the JAS143 standard for graded lumber is scheduled to have its five-year revision completed by April 2000. Canada is concerned that JAS143 will be adopted without sufficient consideration of Canadian data or positions, such as conclusions arising from lengthy scientific tests of Canadian and Japanese species regarding, for example, the wane and knot area ratio issues. The proposed revised JAS143 standard does not include spruce, pine or fir, which are major exports to Japan. Canada will press for acceptance of a performance-based approach in JAS standards.

Registered Certification Organizations (RCO) and Registered Grading Organizations (RGO)

Canada welcomes the decision by Japan to undertake a process to recognize foreign organizations for RCO and RGO status. In implementing this decision, Canada would encourage Japan to rely as much as possible on international standards rather than developing standards unique to the Japanese market. Recognizing that this represents an important new step in the internationalization for Japanese standards, Canada also encourages Japan to develop transparent and understandable systems, for example, in its requirement for equivalency for national standards.

Performance Requirements for Lumber for Traditional Housing

Canada is working to ensure that performance criteria being developed for traditional zairai housing in Japan should not be based solely on the use of tsugi lumber, but rather should recognize the characteristics of other species (e.g. hemlock).

Ten-Year Housing Warranty System

In implementing the new ten-year Housing Warranty System, Canada is encouraging Japan to ensure that requirements are not so onerous as to discourage SMEs from competing for construction services.

Improving Access for Trade in Services

Telecommunications Services

Over the last year, the Japanese market for telecommunications services has seen a significant opening to foreign companies. There are now 200 facilities-based (Type I) carriers in the Japanese market, with a significant portion backed by foreign operators, including one controlled by a Canadian company. Of the more than 90 companies with Special Type II licences (resale), over 40 are foreign-controlled local carriers. As well, there are over 7,000 companies, including Internet service providers, which operate under a General Type II licence.

The Government continues to monitor Japanese implementation of GATS commitments for basic telecommunications services. Several issues have been flagged by Canadian companies with respect to compliance with the Reference Paper on Regulatory Principles, including the dominant position of the incumbent, difficulties with interconnection and administrative procedures and the independence of the regulator.

Financial Services

The substantial reform, deregulation and restructuring of Japan's financial services sector currently under way offer enhanced opportunities for Canadian financial services companies. The "Japanese Big Bang" proposals announced in 1996 have led to date to the liberalization of the Japanese financial system, notably through the removal of restrictions on foreign-exchange transactions. However, some regulatory barriers to competition remain, such as entry restrictions. It is hoped that by the end of 2000, banks, insurance companies and securities firms will have complete freedom to enter into each other's activities.

Areas of particular interest in which Canadian companies have both experience and expertise include asset management, asset securitization and insurance. Already several Canadian companies have expanded their existing operations or are considering important investments in Japan. The Embassy has worked closely with some of the financial services companies new to this market to ensure that Canadian companies have equal opportunity compared to foreign and domestic rivals.

Investment

Japan is a major source of foreign investment in Canada, accounting for $8.1 billion in FDI in 1998. Canadian direct investment in Japan now stands at approximately $3.2 billion, a slight increase from 1997, but down from a high of $3.5 billion in 1994. There are encouraging signs that this total may increase given recent indications from Japan of its desire to increase foreign inward investment. In April 1999, the Japan Investment Council (JIC) issued a report incorporating seven sets of recommendations for improving Japan's investment environment, and the Prime Minister released an official policy statement noting that increased foreign investment is vital to the reinvigoration of the Japanese economy. Deregulation is ongoing, particularly in the financial sector, and the Government has introduced such measures as consolidated accounting and bankruptcy legislation in order to increase financial transparency and facilitate corporate restructuring, thus encouraging foreign investment.

Japan imposes few formal restrictions on FDI and has worked to remove or liberalize most of the legal restrictions that apply to specific economic sectors. Prior notification is now required only for investment in certain restricted sectors. The Government does not impose export-balancing requirements or other trade-related FDI measures on firms seeking to invest in Japan. Moreover, risks associated with investments, such as expropriation and nationalization, are not an issue in Japan.

However, Japan continues to host the smallest amount of inward foreign investment as a proportion of GDP of any major OECD nation, and several long-standing, structural impediments remain. These include a high overall cost structure, exclusive buyer-supplier networks and alliances and regulations that serve to inhibit the establishment and acquisition of businesses. Foreign participation in mergers and acquisitions continues to lag in Japan. However, in the first nine months of 1999, the number of mergers and acquisitions by foreign firms in Japan increased by 30 percent over the previous year. Among them is Canada's largest investment to date in Japan -- Manulife Financial's joint venture investment with Daihyaku Insurance, valued at almost $1 billion.

China and Hong Kong

China

Overview

The People's Republic of China (not including the Hong Kong Special Administrative Region) is Canada's fourth-largest export market. In 1999, Canada's total exports of goods to China reached $2.48 billion, an increase of 0.2 percent over 1998. The total value of imports of goods was $8.91 billion, an increase of 16.5 percent over 1998.

With nearly one quarter of the world's population and a growing middle class, China shows great promise as a consumer market. An increasingly Western lifestyle among the urban middle class, along with a softening of the Chinese government's isolationist policies, make this market all the more attractive from a Canadian perspective.

As outlined in the China and Hong Kong Trade Action Plan 2000, Canada's policy approach takes full account of the reality of China's rapidly growing importance in world affairs. An economic partnership between China and Canada is a key element in supporting long-term relations and encouraging China's further integration in global and regional political and economic institutions.

Despite the opportunities that China presents, a number of significant problems and practices impede full Canadian access to the Chinese market. Canadian companies must bear in mind that China consists of a number of distinct regional markets, similar to the United States or the European Union, each operating and evolving in a distinct and often autonomous fashion. Some elements of the former planned economy remain, however, so in certain types of economic activity, or in projects exceeding a threshold size, the central government continues to play a key and sometimes decisive role.

WTO Accession

On November 26, 1999, Canada and China reached agreement on a wide range of market access issues related to China's accession to the WTO. A separate understanding was reached on key sanitary and phytosanitary issues affecting trade in agricultural goods. The Canada-China agreement covers agricultural products, industrial products and all services sectors, and comes into effect after China officially joins the WTO. The agreement was signed in Toronto by Minister Pettigrew and his Chinese counterpart. Minister Pettigrew had earlier addressed the members of the Canada-China Business Council on the importance of Canada-China trade relations.

Before becoming a WTO member, China must complete negotiations in Geneva on an overall framework to finalize its entry. It must also negotiate a number of bilateral market access agreements with other WTO members. Since these negotiations are done on a MFN basis, once China is in the WTO, the best results of all the bilateral negotiations will apply to all Members.

Although import tariff levels have been reduced significantly by China over the past five years, high tariffs on some imports remain a major impediment to Canadian exports. The Canada-China agreement on WTO accession provides for tariff reductions on a wide range of Canadian priority industrial and agricultural goods, which had an export value of $1.5 billion in 1998. China's tariffs on Canadian priority goods will fall from an average of 12.5 percent to an average of 5.2 percent over a period of two and a half years. For those high-tech products covered by the ITA (such as telecommunications equipment), China will eliminate all tariffs within five years.

The Chinese trade regime is not fully transparent and presents real challenges to Canadian companies. Access to fair judicial review of rulings by Chinese officials regulating trade or investment matters is inconsistent. Laws and regulations are also often inconsistently applied because of the increasingly decentralized nature of administration in China and the growing autonomy of local centres of power, whose administrative units often act independently of central commands and of written laws endorsed by the central authorities.

To join the WTO, the Chinese government will have to address issues of low transparency, lack of access to judicial review and the inconsistent application of laws and regulations. The WTO accession process will also facilitate greater awareness of and more consistent application of trade rules at the local and regional levels.

Under the current trade regime, certain more prevalent problems exist, including variable import tariffs; different standards; complicated or non-transparent investment rules; a lack of equivalent treatment between foreign and domestic firms (no national treatment); and a lack of equivalent treatment of imports from different countries. The application of import licences and import quotas for a number of sectors or commodities also constrains free and fair access to Chinese markets. As part of joining the WTO, China will have to phase out import quotas, apply the same standards to all goods and treat imports from all WTO Members in a consistent manner.

Canada is also concerned that Chinese standards, technical regulations and, in particular, requirements for statutory inspection are being used as impediments to market access and do not reflect the least trade-restrictive principle. Canada, in the context of discussions with China through the WTO accession process, is working to obtain a comprehensive notification of the standards-based measures being applied, and is working to identify and eliminate those that are merely qualitative in nature, disguised barriers to trade or unnecessary impediments to imports. Our objectives are to ensure that China applies international standards and to increase access through various market access tools. In some sectors, such as building materials and construction, a bilateral building codes and standards committee will help to facilitate development of more appropriate standards and codes.

Agricultural products face a number of SPS market access barriers, in addition to often very significant tariff barriers. Efforts undertaken in close cooperation with the CFIA are designed to encourage and facilitate China's adoption of a more transparent and science-based approval system. In parallel with the WTO accession negotiations, a ROU was reached between the CFIA and China's State Administration on entry-exit inspection and quarantine on a number of long-standing Canadian concerns affecting Canadian exports of beef, pork and seed potatoes. Under the ROU, China agreed to a clear timetable for addressing these concerns on the basis of sound science. Canada continues to press for regulatory approval for other Canadian products, including tobacco and seed corn.

Specific Market Access Concerns

Telecommunications Equipment and Services

Sales of Canadian telecommunications equipment are doing well in China. However, there are some concerns about the process of tendering and procurement in this sector, as the Ministry of Information Industry (MII) has at times publicly requested that purchasers of telecommunications products favour locally produced equipment. There are also indications that exporters may face standards-based regulatory barriers that are not applied to domestically manufactured products.

The increasing commercialization of this sector is encouraging, and declining market dominance by former monopoly or para-monopoly carriers will create new opportunities for foreign equipment suppliers. The recent announcement of the establishment of a third national carrier in an effort to increase competition is a move toward deregulation and liberalization of the sector.

The telecommunications services sector in China has remained a high priority in Canada's bilateral negotiations with China on WTO accession, and Canada will closely monitor the implementation of China's GATS commitments in this sector, as well as the treatment of Canadian companies that are already present in the Chinese market.

The Chinese government recently announced that foreign investors are banned from joint ventures in Internet services and with Internet content providers. In the face of reaction from foreign companies already invested in this area, China has committed to examine the possibility that foreign companies could be allowed to invest in this sector.

Newsprint

In 1997, China introduced a new variable tariff on newsprint, with a steep inverse relationship to price and a base figure of US$550/tonne. This tariff would impose tariffs at rates of anywhere from 3 percent (for high-priced imports) to 45 percent (for imports on the low end of the price scale). Such a variable rate is intended to compensate for loss of revenue from price fluctuations, and is a reaction to a dramatic drop in newsprint prices, which had led to imports being priced lower than domestically produced newsprint. China has agreed that once it joins the WTO, it will replace this variable tariff with a 15-percent tariff, which will fall to 5 percent over a phase-in period.

In June 1999, China rendered a final decision to impose anti-dumping duties on newsprint from Canada, the United States and the Republic of Korea. The duties range from 57 percent to 79 percent. Canada has raised concerns with the Chinese authorities that the provision for judicial review of dumping and injury rulings by China has not been incorporated into their 1997 Anti-dumping and Anti-subsidy Regulations.

Agricultural Tariff Rate Quotas

In 1997, China announced its intention to implement a TRQ system for a number of agricultural imports. Twenty percent of the value of Canada's exports to China in 1997 would have been affected by this new measure. Under the Canada-China agreement on WTO accession, only two Canadian priority exports will face TRQs:

canola oil: The TRQ, which will be eliminated within six years, will start at 600,000 tonnes upon accession and will rise to 1.13 million tonnes in five years. Canola oil will face the same tariff level as its main competing oil, soybean oil. No TRQ will apply to canola seed.
wheat: The TRQ is 7.3 million tonnes, rising to 9.3 million tonnes within four years.

It is particularly important to Canada that China's TRQ system operate in as open, transparent, efficient and predictable a manner as possible, so that it does not distort trade. Canada continues to work closely with China to ensure that the TRQ system does not disadvantage Canadian agricultural products.

Pork and Beef

In 1997, Canada signed beef and pork import protocols with China. It was expected that under these agreements, exports of Canadian pork and beef to China would commence; however, Canadian exports did not materialize under the protocols. In November 1999, China signed a ROU with Canada that sets out a clear timetable addressing these restrictions to trade.

Seed Potatoes

Canadian seed potatoes are currently banned from Chinese import. China completed a pest risk assessment for Canadian seed potatoes in 1999 and has agreed to work toward finalizing a phytosanitary protocol in 2000.

Services

Although Canadian services providers have gained some access to limited areas of opportunity in the Chinese market, China continues to limit the operations of foreign services companies. Restrictions include: where firms may operate; how many foreign firms can operate in certain sectors; and licensing requirements that discriminate against foreign services firms. In the course of bilateral WTO accession negotiations, Canada succeeded in obtaining commitments to moderate or remove these restrictions once China is in the WTO, particularly for financial, telecommunications and professional-services sectors, all of which are sectors of Canadian expertise and offer great potential in China.

Investment

Canadian direct investment in China has shown a consistent increase in recent years, rising from $257 million in 1994 to $464 million in 1998. Canada continues to consider China a top priority for the negotiation of a FIPA, and discussions are ongoing. For the past six years, China has been the second-largest recipient of FDI in the world. The average size of new investments is steadily increasing, and the profile of the average investment is shifting from small family enterprises to more sophisticated operations of multinational companies.

The Chinese government's stated intention in promulgating the 1995 Interim Regulations Guiding Foreign Investment was to better channel foreign investment into infrastructure-building and basic industries, especially those involving advanced technologies and high value-added, export-oriented products. Priority sectors include transportation, communications, energy, metallurgy, construction materials, machinery, chemicals, pharmaceuticals, medical equipment, environmental protection and electronics. The Chinese government still prohibits foreign investment in projects whose objectives are not in line with the State Plan. Engaging in foreign trade requires the official permission of the state. There are many areas in which foreign investment is technically allowed, although it is severely restricted. While China's investment laws and regulations do not require technology transfer, they strongly encourage it. Although China has passed an insurance law and is taking steps to reform and develop its domestic industry, it still blocks nearly all foreign companies from the market. Foreign firms are prohibited from owning and managing distribution networks, wholesaling outlets or warehouses.

Hong Kong

Overview

The Hong Kong Special Administrative Region (HKSAR) will maintain considerable autonomy in economic, trade, cultural and political affairs until the year 2047. The region has its own financial system and formulates its own monetary and financial policies. The Hong Kong dollar continues to circulate as legal tender. Hong Kong remains a free port and separate customs territory. It can conduct relations with states and international organizations on the economy, money and finance, shipping, communications, tourism, culture and sports. Under the name "Hong Kong, China", this distinct economy is a member of APEC and the WTO.

Hong Kong remains an aggressively free-market economy, with virtually no barriers to entry or doing business. With the exception of excise taxes on autos, fuel, liquor and cigarettes, there are no duties, taxes or quotas on imported goods.

Canadian firms continue to enjoy excellent access to the Hong Kong market, and there are no outstanding bilateral market access issues. The Hong Kong government continues to develop its own economic, fiscal and budgetary policies based on its own interests and its dependence on trade. The policy of minimal government interference in the economy continues to apply equally with respect to trade in goods and services and to investments. In addition, Hong Kong remains a key entry point to the China market, with re-exports of Canadian goods to China totalling $644 million in 1998.

Investment

FDI in Canada from Hong Kong continues to show a consistent increase, rising from $2.7 billion in 1994 to $3.4 billion in 1998. In general, Canadian investors face few difficulties in the Hong Kong market. Canadian investment in Hong Kong has grown from $2.1 billion in 1994 to $2.9 billion in 1998.

Republic of Korea

Overview

In 1999, Canada's goods exports to the Republic of Korea totalled $1.93 billion, and imports were $3.57 billion. Korea is Canada's third-largest market for merchandise exports in the Asia Pacific region (after Japan and China), and the fifth-largest worldwide.

The Republic of Korea's economic policies are designed to promote its domestic industry and exports, while discouraging imports of some value-added goods. Generally, tariffs, import licences and import procedures all favour the importation of raw materials and industrial equipment rather than finished goods. For instance, the Korean practice of frequently revising applied tariff rates at six-month intervals plays havoc with exporters trying to establish long-term business relationships with Korean importers. While there has been some liberalization of import procedures, significant obstacles and rigidities remain.

The Canada-Korea Special Partnership Working Group (SPWG), launched in April 1994, has the objective of increasing cooperation in areas such as trade, investment, industrial cooperation and technology transfer. A subcommittee of the SPWG addresses market access issues. A Committee on Industrial and Technological Cooperation has also been created to further increase cooperation between the private sectors of both countries, initially focussing on manufacturing technology, new materials, biotechnology, environment, energy and telecommunications. The last meeting of the SPWG took place in Ottawa on June 1, 1999.

Market Access Results in 1999

In July 1999, Korea and Canada signed the Canada-Korea Telecommunications Equipment Agreement that puts Canadian suppliers of telecommunications equipment on an equal footing with their U.S. and European competitors.

Canada's Market Access Priorities for 2000

press Korea to maintain its applied tariffs on an open-ended basis and to lock-in tariff reductions;
continue to make representations on technical bottled water market access problems, such as restrictive government-mandated shelf-life requirements and onerous testing requirements;
continue to press Korean authorities to obtain the necessary approvals for the sale of seal meat in Korea;
on investment and services, continue to press for inclusion of recent further financial-sector liberalization as part of Korea's international commitments during the new WTO services negotiations; and
continue to support as a third party U.S. and Australian challenges of the Korean beef quota.

Improving Access for Trade in Goods

Canola Seed and Canola Oil

Canadian exports of canola products to Korea are negatively affected by Korean tariff practices in several ways. First, it is impossible for Canadian exporters to provide long-term price certainty due to the fact that the applied tariff cannot be counted on to remain in effect for more than six months. For instance, although the canola oil tariff was reduced from 15 percent to 10 percent in January 1999, the Canadian government will need to encourage Korea not to raise the rate again. In December 1999, Korea decided to raise the applied tariff rate on canola meal from 3 percent to 5 percent. Second, Korea maintains lower tariffs for soybean products than it does for the corresponding canola products, despite the fact that these products are interchangeable and compete with each other on price. Korea also favours the use of tariff escalation, i.e. low tariffs on raw materials and higher tariffs on processed goods, as a means of protecting Korean oilseed processors. It is therefore the objective of the Canadian government to seek permanent tariff elimination for all canola products or tariff harmonization for all oilseed and oilseed products.

Tariffs on Feed Peas

Korea's tariff for feed peas is 30 percent. Tariffs for competing feed products are generally less than 5 percent (barley at 1 percent, feed wheat at 1 percent). Canada considers that the current tariff discourages the import of feed peas vis-à-vis other feed imports and is to the detriment of the Korean domestic feed industry. To allow the Korean compounding industry to have access to this alternative feed product, Canada has requested a tariff of no more than 5 percent for feed peas.

Soybean Tendering

The tendering system administered by Korea's Agricultural Fishery Marketing Corporation prevents Korean importers from accessing the high-quality, premium-priced, tofu-grade soybeans that Canada produces. Korea has a tariff rate quota for food-grade soybeans, which is administered through international open tender, mainly on the basis of price. This is an inflexible system that has no provision for price premiums for quality, tendering on small lots or long-term contracting. Canada considers that Korea cannot currently fully supply its soy-processing sector with the required high-quality product and that it would be to the mutual advantage of both countries to provide more options in the administration of imports.

Bottled Water

Canada remains concerned about Korea's trade-restrictive government-mandated shelf-life requirements and onerous testing requirements for bottled water. Canada will continue to make representations in an effort to resolve these issues.

Seal Meat

Korea maintains an informal import prohibition on seal products through its omission from the Korean Food Code. Canada has made numerous representations to Korean authorities since 1995 to have seal meat approved for human consumption, pointing out that Canadian seals are not endangered. The issue was raised again at the June 1999 SPWG meeting but no progress was achieved. Information will be presented to Korea in an effort to document Canada's Food Code information on seal meat, as well as any available OIE information on the subject, in preparation for further discussion of the issue at the next SPWG meeting.

Beef

Canada is participating as a third-party member of a U.S./Australian led WTO challenge of Korean rules and regulations that restrict the marketing channels for imported beef to certain "import-only" stores, and recent measures that may affect the ability of end users to develop commercial relations directly with exporters. Canada presented its submission at the first meeting of the parties with the WTO panel, which was held in December 1999.

Investment and Services

Although Korea is Canada's fifth-largest export destination, the stock of Canadian direct investment in Korea remains modest. The reform of Korea's regulatory regime for foreign investment has been the focus of considerable government effort in recent years, particularly in response to the 1997 economic crisis. As a result, Canadian investment flows have shown encouraging increases. The stock of Canadian direct investment in Korea has grown 137 percent since 1993, and from $172 million in 1997 to $292 million in 1998. This trend appears to have continued through 1998 and 1999, as a number of Canadian firms have moved forward to take advantage of the liberalizing environment and emerging acquisition opportunities.

Korea's rule-making process, traditionally opaque and non-transparent, and chaebol domination of the Korea economy have often caused practical business problems for investors. However, significant progress has been made by Korea in implementing measures to liberalize foreign exchange and capital flow, open the capital market and reduce barriers to portfolio and direct investment. Limits on foreign investment into the local bond and money markets have been lifted, while the ceiling on foreign investment in the stock market has been eliminated. Foreign banks and securities firms can now establish local subsidiaries and enter into takeovers of Korean corporations. Restrictions on foreign ownership of land have also been eliminated.

To create a more favourable investment climate, effective November 17, 1998, the Korean government passed the new Foreign Investment Promotion Act. This act has increased the number of business sectors that are now open to foreign investment, broadened the scope of tax incentives currently available, simplified the procedures for making an investment and established foreign investment zones. With these most recent reforms, only 13 sectors remain fully closed to foreign investment and 18 partially closed. Other measures that have liberalized the investment environment include the introduction of provisions allowing foreigners to purchase 100 percent of the target company's outstanding stock without the consent of its board of directors.

In connection with the 1999 presidential state visit to Canada, a roundtable with President Kim was held for CEOs of Canadian firms with investment in Korea. Other activities included Canada's participation in the APEC Investment Mart in Seoul and in Technomart 99, a R&D partnering event.

Chinese Taipei (Taiwan)

Overview

In 1999, Canadian goods exports to Chinese Taipei totalled $1.08 billion. Chinese Taipei ranked fourth among Canada's export markets in the Asia Pacific region, accounting for 6.3 percent of our total exports to the region. It was Canada's seventh-largest market globally. Canada's merchandise imports from Chinese Taipei in 1999 totalled $4.58 billion. Chinese Taipei's economy remains very dependent on trade. It is a major exporter, as well as a major source of investment for the region, particularly to China and Southeast Asia, and it is growing as an important regional importer. This has given strong impetus to trade and market liberalization, though domestic political pressures continue to lead to protectionist measures, which affect agricultural and agri-food imports, as well as the financial services area.

WTO Accession

Canada remains an active participant in WTO-accession negotiations with Chinese Taipei. A major goal for Canada in these negotiations has been to secure improved, non-discriminatory access to this major market for Canadian goods and services. Bilateral market access talks with Chinese Taipei, which had begun five years earlier, were formally concluded on June 28, 1999. Though the talks had finished in late 1997, exclusive access granted subsequently to the United States for several meat products marked a step backward, in our view. Canada, therefore, re-opened the talks, insisting that conclusion would hinge on Canada receiving comparable access for the beef and pork products affected. Such access was granted by Chinese Taipei during 1999 by means of interim MFN quotas covering these products. This facilitated the formal conclusion of our bilateral talks.

The terms agreed bilaterally will seal commitments by Chinese Taipei to liberalize access to its market, commencing the date of its accession. Chinese Taipei's undertakings in the accession negotiations include tariff elimination for WTO "zero-for-zero" sectors, including pharmaceuticals, paper and medical equipment, as well as tariff reductions for chemicals under the WTO Chemical Tariff Harmonization Agreement. As well, Chinese Taipei had already signed on to the ITA, agreeing to full tariff elimination on IT and telecommunications products. Canadian suppliers stand to gain more secure and open access for these and other industrial priorities, including plywood products. Aerospace products will benefit from accession, as Chinese Taipei has undertaken to become a signatory to the plurilateral WTO Agreement on Trade in Civil Aircraft, when it joins the WTO. Canadian suppliers' access to the Chinese Taipei market for automobiles will remain favourable as Chinese Taipei proceeds with the liberalization of its import regime in this sector.

Access conditions will also improve for a range of agricultural, agri-food and fish and seafood products. Among the gains are Canadian priorities such as grains, oilseeds, meat products and processed foods. For example, accession will mean equitable and more open market access for Canadian suppliers of canola oil and beef.

In services, Chinese Taipei included commitments in areas of prime interest to Canada, including financial services, basic and advanced telecommunications services and professional services.

The multilateral negotiations related to Chinese Taipei's accession reached a final stage in 1999, focussing on the drafting of the Working Party Report and Protocol of Accession.

As part of its WTO accession, Chinese Taipei has also applied to join the WTO AGP. Canadian suppliers are seeking access to key sectors and assurances that public tendering procedures will be fair and transparent, with an independent mechanism for suppliers to challenge the consistency of procurement actions with the agreement. Our bilateral negotiations continue in this regard.

An issue of concern to the working party relates to the lack of advance consultation and notification in Chinese Taipei's procedures for introducing new legislation and regulations affecting trade. Chinese Taipei has committed to implement appropriate transparency procedures, in accordance with WTO requirements.

Beef

The long-standing discriminatory tariff treatment of some grades of Canadian high-quality beef will be gradually eliminated after Chinese Taipei joins the WTO. Currently, only certain cuts of Canada Prime and Canada AAA beef attract the preferential tariff rates that Chinese Taipei applies to all U.S. high-quality beef (USDA Prime and Choice). This situation was aggravated in mid-1999 when Chinese Taipei applied a higher tariff to imports of several types of Canada AAA beef ('thin meat'). Canada continues to press Chinese Taipei to reverse this decision.

Meat Quotas

In mid-1999, as a pre-accession concession, Chinese Taipei implemented MFN quotas on imports of several meat products that had previously been banned. These quotas were in place until January 1, 2000, the date Chinese Taipei had hoped to be admitted to the WTO. In response to pressure from Canada and others, Chinese Taipei re-established the quotas for a further six-month period, until to June 30, 2000. The quotas were announced in January 2000 and distributed to importers in February 2000.

Seed Potatoes

Following a request from the seed potato industry in the Western provinces, Canada first approached Chinese Taipei to remove its ban on imports of seed potatoes from Canada in 1993. Chinese Taipei prohibits the importation of seed potatoes from Canada because of concerns about the presence of golden nematode and potato wart in Canada. While Canada has demonstrated that its strict quarantine measures prevent the spread of golden nematode and potato wart outside Newfoundland and Vancouver Island, Chinese Taipei insists on additional survey data demonstrating that the production areas from which potatoes are shipped are free from these pests. Chinese Taipei only imports seed potatoes from Alaska, to which Canada is an exporter of the same product. Chinese Taipei's current phytosanitary measures, however, allow the importation of table potatoes from Prince Edward Island, New Brunswick and Quebec, for which Canada has requested a TRQ.

Greenhouse Vegetables

In its efforts to develop export markets, the Canadian greenhouse vegetable industry has indicated that Chinese Taipei is a priority market. Chinese Taipei will not accept tomatoes if it cannot be certified that they originate from an area free from potato late blight type A-2, to which tomatoes are susceptible. Canada maintains that certification that the fruit is free from A-2 late blight is sufficient. Peppers from Canada are banned because they are deemed to be a host for tobacco blue mould, known to have occurred in Ontario. Canada will press for recognition of an area that is free from tobacco blue mould to allow exports from British Columbia.

Softwood Lumber

Chinese Taipei is a major export market for softwood lumber, but only for the lower grades used for packaging. The market is felt to be open to increased use of wood in construction, but the opportunity is held back by the concern of financial and insurance institutions that Chinese Taipei wooden-building code, at four pages in length, is insufficiently prescriptive to provide assurance of adequate quality. With the support of Canadian industry, Canada is to press for enhancement of the code toward that used successfully in Canada or Japan.

Medical Devices

The Chinese Taipei market holds promise for exporters, but growth has been hampered by Chinese Taipei's inequitable treatment of imports from different countries. Canada's U.S. competitors enjoy access based on Chinese Taipei's recognition of U.S. quality-control regimes, while additional guarantees are required from Canadian exporters. Canadian efforts are under way to obtain equivalent recognition.

India

Overview

The Indian economy has changed dramatically since 1991, when India launched its program of economic reforms and trade and investment liberalization. India's economic growth rate was 6 percent to 7 percent per year from 1993 to 1998, with similar growth expected to be reported for 1999 when final statistics are compiled. Growth for 2000 is expected to remain around the 6 percent mark. The fundamentals of the Indian economy are sound and were not affected by the financial problems in East and Southeast Asia. Measures and sanctions against India imposed after its nuclear tests have had little effect on the Indian economy, except for the non-availability of some foreign lending for infrastructure projects. The election of a substantial majority government in the 1999 general elections, the resultant political stability and the strength in business confidence indices and the capital market underscore the resurgent prospects for the Indian economy in the short to medium term. The new Government has already passed an impressive list of economic bills to further liberalize and streamline the Indian economy. These include: the Insurance Regulatory and Development Authority Act (detailed in the section on financial services below), the Foreign Exchange Management Act, the Trade Marks Bill, the Geographical Indicators of Goods Bill, the Designs Bill and the Copyrights Bill. Total Canada-India merchandise trade for 1999 reached $1.4 billion, with a balance of $628 million in India's favour. Canadian investment in India is relatively modest in comparison with that of other major industrialized countries, with approved direct investment of $229 million in 1998.

Since liberalization began, the Indian government has been steadily lowering tariff rates from a peak rate of 300 percent in 1991 to a maximum of 40 percent (with a few exceptions) in 1997-1998. However, the 1996-1997 and 1997-1998 budgets announced temporary additional duties of 2 percent and 3 percent respectively. Another 4 percent Special Additional Duty was introduced in the June 1998 budget. Canada has expressed its concern regarding these additional duties and will pursue this issue, along with other interested countries, at the WTO.

India offers significant opportunities for Canadian trade and investment, particularly in areas of traditional Canadian strength, such as telecommunications, power equipment and engineering, infrastructure development and environmental technology. India has a GDP of about US$470 billion, and over 40 million Indian households have an annual income in excess of US$4,000. These opportunities were the inspiration for the successful 1996 Team Canada trade mission. Led by Prime Minister Chrétien, a group of seven provincial premiers, two cabinet ministers and 300 business people worked to boost trade and investment ties with India. The growing Canada-India bilateral trade and investment ties have, since then, been facilitated by a number of organized business delegations visiting each other's territories, most notably the Confederation of Indian Industry (CII) delegation that visited Canada in August 1999 and the Canada-India Business Council (C-IBC) delegation that visited a number of Indian cities in October 1999.

Market Access Results in 1999

Under an agreement announced January 10, 2000, quantitative restrictions (QRs) and import-licensing requirements will be lifted on 1429 agriculture, textile and consumer products. QRs on 714 tariff lines will be eliminated by April 2000, with the remainder phased out by April 2001.
In October 1999, new telecommunications legislation was passed that will allow basic and cellular service operators to migrate from the existing system of a fixed-licence fee to a revenue-sharing regime. This will enhance market access for new entrants.

Canada's Market Access Priorities for 2000

press India to respect its ITA commitments, particularly for telecommunications equipment;
ensure that the accelerated phase-out of QRs on the remaining 1429 tariff lines under the recent (January 10, 2000) Indo-U.S. Agreement is also afforded to Canadian exporters, to be consistent with MFN rules;
press India to ease existing restrictions on the import of bovine semen from Canada; and
continue to assist India in reforming its telecommunications policies and regulations.

Telecommunications

Canadian firms continue to have difficulties in penetrating the Indian market for telecommunications goods and services. In the basic and cellular services sector, non-transparent bid methods and additional fees added after the bidding process have frustrated access to the market. However, some of the new fees for basic and cellular services have been reduced or eliminated.

High tariffs (in the 40 percent to 50 percent range) have impeded the ability of Canadian firms to sell in the Indian telecommunications market. Canada is encouraged that India has joined the ITA with a commitment to eliminate its tariffs on a wide range of IT products by 2005 at the latest.

On May 13, 1999, India removed the concessional duty for specific telecom equipment of interest to Canada and other industrialized countries, resulting in duty rates for these particular goods violating India's ITA commitments. Concessional duties on these products, brought in the February 1999 budget, were highly beneficial to Canadian and foreign firms bidding on telecom infrastructure projects in the promising Indian market. Removal of this concession has put Canadian suppliers at a disadvantage.

India participated in the GATS basic telecommunications negotiations, essentially binding its existing regime, which provides for the government operator plus one other company in basic telecommunications; and for each region, it provides for the government operator plus two private-sector firms in cellular telecommunications. Private operators may have up to 49 percent foreign equity.

The Indian Parliament passed the Telecom Bill, 1999 on October 20, 1999. The introduction of the Telecommunications Regulatory Authority of India (TRAI) in 1997 and the appointment of a task force to develop a new telecommunications policy in India in late 1998 are positive steps in liberalizing India's telecommunications sector. Canada, through the telecom framework project funded by the Canadian International Development Agency (CIDA), with Industry Canada as the executing agency, has assisted India in establishing the TRAI and will support related work by the Department of Telecommunications in connection with spectrum management, the establishment of standards and the resolution of future directions, including the commercialization of R&D in communications technology. Canada will continue to monitor developments in India that affect Canadian companies, particularly the transparency of the licensing regime for new carriers and the tariff rates on imports of telecommunications products.

Power

India's power sector promises to be one of the fastest-growing in the world, experiencing annual growth rates in the range of 9 percent to 10 percent. India's Ministry of Power estimates that India would need an additional 90,000 MW of installed capacity in the next ten years, requiring an investment of Rs. 4 trillion (approximately $135 billion), in order to meet the rising demand.

Despite strong domestic demand for additional power development, and many government proclamations of fast-track projects and one-stop application processing, few private projects have been implemented in the power sector. Further delaying much-needed projects are the current regulatory regime, complicated state-level approvals (in addition to those required by the central government) and a lack of transparency in the approvals process. In 1998, the Indian government introduced a number of new policies to help move new projects forward. These included the development of central and state regulatory commissions, a new hydro policy, a policy for mega-projects and a policy on privatization of transmission and distribution, among others. Some of these reforms are already under way, and a number of states have already set up state-level regulatory commissions to complement the central regulatory commission. The Indian government decided in September 1999 that all interstate thermal power projects of over 1,000 MW and hydro-electric projects of over 500 MW would qualify for various concessions and incentives, including tax holiday and the waiver of customs duties.

State electricity boards are largely in poor financial condition and will need greater support, major reforms and/or privatization to help reduce India's significant power-supply shortage. A number of state electricity boards, with funding from the World Bank and the Asian Development Bank (ADB), have embarked on the path of restructuring their operations. These include the states of Orissa, Andhra Pradesh, Hariyana, Uttar Pradesh, Rajasthan, Tamil Nadu and Kerala. The CIDA-funded energy infrastructure services project in Kerala is aimed at enhancing the capabilities of personnel and restructuring the state electricity board to make it better able to plan for the development of the power sector. Restrictions in the Indian financial services sector also limit the number of projects that can gain adequate financing. Canada will continue to use every opportunity to advocate further reforms in this sector. The Export Development Corporation (EDC) is quite active in India, having allocated a significant portion of its estimated $2-billion commitments in India to the power sector.

Financial Services/Insurance

In October-November 1999, the Insurance Regulatory and Development Authority (IRDA) Act was passed by the Lower and Upper Houses of the Indian Parliament and received Presidential Assent. The act provides statutory status to insurance regulators and allows foreign equity in domestic private insurance companies to a maximum of 26 percent of paid-up capital. The act also opens up the industry to private sector participation by amending the Insurance Act of 1938 and the "exclusive privilege" granted to the General Insurance Corporation (GIC) of India (GIC Act of 1956) and Life Insurance Corporation (LIC) of India (LIC Act of 1972). The Indian partner, initially holding 74 percent of the joint venture, would be required to reduce its stake to 26 percent within ten years. The act restrains new companies from investing any funds abroad and requires that all insurance companies, with or without foreign equity participation, to carry out some business in rural areas.

Industry observers, including Canadian insurance companies with a presence in India's financial services sector, believe that the Government is trying to open up the Indian insurance market to foreign participation and competition and believe that these goals are likely to be achieved by October 2000. They do not, however, rule out a readjustment of the equity holdings of both partners in the longer term. The Canadian government will continue to press for further liberalization in the insurance sector and in other parts of the financial services sector, building on recent Canadian successes in India's asset management subsector.

Agricultural and Manufactured Goods

India maintains a number of restrictions related to balance-of-payments ("negative list"), affecting both agricultural and manufactured goods. The list includes banned items (for example, offal and animal tallow) and restricted items that require an import licence. A large number of items were removed from this list in the 1997 budget. In 1998, the first tranche of items from the bilateral agreements was removed from the import restrictions, and later in 1998, a number of other agricultural goods were freed, including many oil seeds. The entire 14.4 percent customs duty on the import of peas/pulses was removed effective November 23, 1998. The special additional duty (SAD) of 4 percent on imports of edible oils was also withdrawn.

Subsequently, the 1999 central budget removed about 1,000 consumer products from the restricted list and put those on the open general list (OGL). In the agri-food sector, up to 50 percent of the production of export-oriented units (EOUs) are allowed to be sold in the domestic market, as compared to a 20-percent limit in other sectors, thus encouraging foreign investment in the food sector.

As announced on January 10, 2000, the Government of India has agreed to lift QRs and import-licensing requirements on a total of 1429 agriculture, textile and consumer products. The agreement was pursuant to the decision of August 23, 1999 of the WTO Appellate Body in which the United States had successfully contested the WTO-consistency of the QRs maintained by India on the grounds of balance of payments (BoP) problems. A total of 714 of the tariff lines will be eliminated by April 2000, with the remaining 715 to be phased out by April 2001. The benefits of eliminating these restrictions should accrue to all of India's trading partners, including Canada, since under WTO rules the results will have to be implemented on an MFN basis. Canada is monitoring the process.

Since 1997, Canadian government officials have held discussions with the Indian government on the issue of access for Canadian live cattle, embryos and bovine semen. To date no resolution of Canadian concerns has been achieved; however, we continue to pursue the issue as a priority.

The non-transparent licensing system lends itself to inconsistent decisions and circumvention. The purported intent of this system is to protect Indian companies in such sensitive sectors as agriculture and food. The effect of these policies on the Indian economy is to permit both public- and private-sector domestic firms to operate inefficiently, with little or no competition, and to limit the quality and quantity of goods available to Indian consumers. Tariffs remain high on many food and consumer items.

Investment

Extensive reforms were introduced in India in 1991 to liberalize foreign investment and simplify the approval process. Prior to that time, companies could enter India only if they brought technology with them. Although investors still face certain restrictions, the number of sectors that do not require approvals, or for which approval limits have been raised, has been regularly growing rapidly in recent years. Total FDI inflows into India have increased dramatically from less than $300 million in 1992-1993 to more than $4.2 billion in 1997-1998. Canadian direct investment in India is still modest, but increased to $226 million in 1998 from $119 million in 1997.

According to the current policy, foreign investment can be approved either through the automatic route or by the Government. Companies proposing FDI under the automatic route do not require any government approval. As of December 1999, there are three sectors eligible for automatic approval of up to 50 percent foreign equity participation, 21 sectors automatically allowing up to 51 percent foreign equity and nine sectors allowing up to 74 percent foreign equity. In addition, foreign equity of up to 100 percent is given automatic approval in the following sectors: electricity generation, transmission and distribution; and, construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours. These rules are being constantly reviewed, and more changes, favouring higher levels of foreign investment in more and more sectors, are likely in the short to medium term. Foreign equity participation in the sectors not identified above, as well as for sectors eligible for automatic approval but where foreign equity caps are exceeded, will require the approval of the Foreign Investment Promotion Board. A number of other measures have been implemented to facilitate inward investment, including liberalized foreign exchange requirements and administrative procedures, simplified procedures for non-automatic FDI approvals and opening up of FDI in the non-banking financial services sector to include credit card business.

Non-resident Indians and overseas corporate bodies with majority non-resident Indian ownership may hold 100-percent ownership in all industries except those reserved for the public sectors (e.g. defence industries, atomic energy, railway transport, coal and lignite). The current investment policy requires no local content for new and existing investment. However, in some consumer goods industries (e.g. automobiles) the Indian government requires the signing of a MOU by the concerned foreign party to ensure net inflow of foreign exchange. Foreign equity must cover the foreign exchange requirement for imported capital equipment.

In November 1997, India announced specific rules applicable to all new foreign automobile investment in India. Under the policy, new and existing joint-venture companies seeking to import unassembled kits and automotive components must sign a standardized MOU with the Indian government with several requirements relating to minimum equity investment, local-content requirements, export obligations and foreign exchange balancing. Prior to this policy, investors in the auto sector were required to conclude MOUs on a case-by-case basis.

Negotiations between Canada and India on a FIPA are continuing.

Southeast Asia

The Asian financial crisis has had a significant impact on all ten economies of Southeast Asia, and will affect our trading relationship in the short to medium term. As a grouping, in 1999, Southeast Asia accounted for $1.91 billion of Canadian merchandise exports (a 4.6 percent decrease from 1998) and $6.96 billion of imports (a 6.4 percent increase). The Asian Free Trade Agreement (AFTA) is evolving slowly and will eventually offer new opportunities in the region. Our goal is to position Canadian business for the economic revival of a highly competitive Southeast Asia over the next two to four years. The ten countries of Southeast Asia are Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Brunei, Burma (Myanmar), Cambodia and Laos.

Indonesia

Overview

In 1999, the value of Canada's merchandise exports to Indonesia was $528 million, and the total value of our imports $865 million. With the recent formation of a new Government, Indonesia is expected to continue liberalization of its trade relations and to institute the International Monetary Fund's (IMF) economic reform program.

Market Access Results in 1999

Canada maintained market share in wheat sales, despite the predatory subsidy policies of competing economies, particularly those of the United States.
The Canadian Embassy continued to press Indonesia customs authorities to improve transparency.
The Indonesian government implemented new regulations permitting greater foreign ownership of commercial banks. Foreign investors may now own up to 99 percent of a bank's shares.
Non-food agricultural tariffs have been reduced.

Canada's Market Access Priorities for 2000

maintain equitable access for Canadian wheat sales, especially in the face of aggressive U.S. wheat competition, market disruption caused by U.S. wheat aid and subsidised EU flour entering the Indonesian market;
continue to encourage the Indonesian government to ensure that Canadian exporters do not face increased costs due to improper delays or unnecessary fees at Indonesian ports. Multilateral trade facilitation efforts (especially within APEC) can be of crucial assistance in this regard;
closely monitor Indonesia's follow-through on commitments it has made under the IMF Program of Economic and Financial Reform and Restructuring; and
monitor the development of AFTA negotiations and encourage ASEAN members to allow greater transparency, particularly regarding rules of origin.

Investment

Canadian direct investment in Indonesia fell slightly from $2.0 billion in 1997 to $1.9 billion in 1998. Indonesia has actively looked to foreign investment to assist in economic recovery from the recent economic crisis. Several new regulations were introduced in 1998 and 1999 to ease the entry of foreign firms and capital into the country and to ease the impact of the downturn in investment inflows.

Notwithstanding these changes, Canadian investors continue to face numerous challenges in accessing the Indonesian market, including a complex and non-transparent legal system that does not provide an efficient or effective recourse for addressing commercial disputes. Efforts have been made by way of a new laws on bankruptcy, anti-monopoly and fiduciary security, but a proper court system is necessary for implementation. Canadian firms continue to face time-consuming procedures and delays in obtaining approvals for licenses and permits required to implement their investment plans. A limited number of sectors are closed to all foreign investment, including freshwater fishing, forestry, public transportation, broadcasting, film and medical clinics.

Indonesia will implement a new law on regional autonomy in May of 2001. This law is a bold attempt by the Indonesian government to decentralize all aspects of the economy except monetary, defence, foreign policy and judicial matters. As a result, investment approvals will no longer be dealt with at the national level, and therefore a number of questions have been raised as to the capacity of regional governments to deal with these matters. Decentralization may cause some initial confusion, but eventually foreign and domestic companies should find investments much easier to make.

The Canadian government has long supported investment to Indonesia by having advisors inside the Ministry of Investment/Investment Coordinating Board and other locations under the auspices of the Canada-Indonesia Business Development Office (CIBDO). These and other Canadian investment advisors in Indonesia are currently focussing their efforts on encouraging investment by the Canadian manufacturing sector that is consistent with Indonesia's interests in diversifying its economy away from a reliance on oil and gas. Canadian investment is expected to once again increase as stability returns to the country and obstacles to investment security are decreased.

Thailand

Overview

Until recently, Thailand was one of the fastest-growing economies in the world. In July 1997, however, the economic crisis resulted in a 50-percent decline in the value of the Thai baht against the U.S. dollar, a change of government and an IMF rescue package of US$17.2 billion. These happenings were initially accompanied by a wide array of spending cuts, which were relaxed and then replaced with a substantial fiscal stimulus package aimed at getting the economy growing again. The economy contracted by over 9 percent in 1998, but is recovering, with an estimated 3-percent growth in 1999. Although Thailand still faces serious challenges, notably related to the very precarious situation of its financial sector, its medium- to long-term prospects remain positive, particularly with additional reform legislation.

In 1999, Canadian merchandise exports totalled $292 million (down 2.7 percent from 1998), while Thai exports were $1.51 billion (up 18.5 percent) to Canada. The 160-member Thai-Canadian Chamber of Commerce in Bangkok attests to the strong bilateral commercial interest.

Market Access Results in 1999

In October 1999, the Thai Parliament adopted a revised Alien Business Law, significantly easing restrictions on foreign companies doing business in Thailand by establishing three tier classifications: foreign investment is banned from industries on List A, which includes all media; investment in List B industries requires Cabinet approval, provided that Thais hold a minimum of 40 percent of the capital in the company and 40-percent membership on the board of directors (List B includes businesses in culture, arts, the environment and/or natural resources); List C industries require approval from the Ministry of Commerce based upon considerations for national security, tradition, conservation of resources and protection of the environment (List C includes accounting and legal services and other businesses in which Thais do not directly compete with foreigners).
In August 1999, Thailand, in response to representation by Canada, reduced the tariff on canola meal from 10 percent to 5 percent, thus making it equivalent to the tariff for soya meal imported from the United States. In addition, Thailand reduced the tariff for alfalfa from a prohibitive 30 percent to 5 percent.

Canada's Market Access Priorities for 2000

seek a reduction in the tariff for feed peas to a level comparable to other feed ingredients;
seek to address the limit on foreign equity investment in joint ventures at 49 percent;
fast-track approval for establishing regional headquarters in Bangkok;
work to eliminate countertrade requirements on government-procurement projects over baht 500 million ($25 million), which create transparency problems;
ensure full implementation and enforcement of intellectual property rules in accordance with Thailand's WTO obligations;
seek the deletion of local content rules on autos and parts, which prevent foreign parts suppliers from fully participating in the auto industry; and
seek the reduction of tariffs on higher value-added paper products and continued high tariffs on beer and spirits.

Vietnam

Overview

Canada's exports to Vietnam in 1999 totalled some $47 million (down 13.2 percent from 1998). These numbers are quite modest because Vietnam's GDP is only US$300 per capita, and Vietnam is dependent on large amounts of aid (US$2.4 billion in 1998) from the international donor community. In addition, Vietnam has not yet reformed its market to allow increased trade and FDI. Vietnam's trade-policy regime is being examined by the WTO working party that oversees their accession process. However, the review process only began in 1998, because Vietnam's initial memorandum needed substantial revision following its October 1996 circulation. Two working party meetings have been held, allowing Canada to emphasize the need for transparency. The Vietnamese accession will be a long and arduous process, as Vietnam's legal framework contradicts many of its future WTO obligations. Canada will continue to work to ensure that Vietnam meets its obligations under APEC and, in the future, the WTO.

Market Access Results in 1999

In July 1999, a trade agreement was reached between Vietnam and the United States to normalize trade relations under what was formerly known as MFN status. However, it is not at all clear that this agreement will be ratified by either country in the short term. This is unfortunate, as the agreement is seen as a key step toward Vietnam's eventual accession to the WTO.
In August 1999, Chinfon-Manulife Insurance Company launched operations in Vietnam. This is a joint venture between Manulife Financial of Toronto and a Taiwanese conglomerate, and is the first investment licence to be granted by Vietnam to a foreign-owned life insurance business. It sends a positive sign to the international community of the opening up of the Vietnamese financial services market and is noteworthy for Canada since a Canadian firm was the first to be so licensed.

Canada's Market Access Priorities for 2000

advocate (including through APEC and through the accession process under the WTO) maximum Vietnamese efforts to open the market to the free flow of goods and services and to develop a more accommodating foreign investment regime.

Malaysia

Overview

In 1999, Canadian merchandise exports to Malaysia declined 13.7 percent to $409 million, while imports increased 3 percent to $2.06 billion. Malaysia has a relatively open, market-oriented economy and Canadian exporters have not faced major market access barriers. The Malaysian government has announced a temporary relaxing of foreign-ownership restrictions, a "special deal" whereby there are no restrictions on foreign ownership for companies investing before December 31, 1999. Companies previously had to export over 80 percent of their product in order to have 100-percent foreign ownership; otherwise, there were requirements for 50-percent Malaysian ownership, 30 percent of which had to be Bumiputra (Malays).

In September 1998, in a significant step away from free market policies, Malaysia imposed exchange control measures. Although these measures were aimed mainly at securities traders, they carry a regulatory regime that will affect exporters, importers, other business people and travellers. On September 1, 1999 these controls were significantly relaxed, and while some exodus of capital followed, it was relatively modest. Following this, the Malaysian government attempted to simplify the withholding tax regime applicable to the repatriation of funds from Malaysia to encourage new foreign investment prior to national elections on November 29, 1999, which saw the Government returned to power with a majority. Under the new regime, it is reported that investment that has remained in the country for more than one year may be repatriated without tax, while investment funds removed before one year would be subject to a 10-percent withholding tax on the profits.

The Malaysian government wants to consolidate the banking industry by reducing the number of financial institutions in the country from 52 to 6. The plan is being implemented not by legislation, but by the Central Bank on a "volunteer" basis through encouragement to smaller banks to merge with selected "anchor" banks. Despite understandable problems with compatibility and proposed limitations on the number of institutions, there is optimism that the central bank, with its leverage over the debt-laden banks, will be able to significantly streamline the sector. The banking industry, in return for subjecting itself to the restructuring, is expected to receive significant debt relief from the government. Other fundamental reforms of the banking system to ensure more professional loan management are still under discussion.

The Malaysian economy is well into recovery, with GDP growth for 1999 expected to be near 5 percent when final statistics are released (up from -7.5 percent growth in 1998). Growth for 2000 is also expected to be near 5 percent. While this growth is driven mainly by export resurgence and public spending, the Government has indicated that its next budget will provide for consumer spending through tax relief and incentives to encourage consumer lending.

Canada's Market Access Priorities for 2000

monitor both intellectual property (IP) legislation, newly implemented to assist in the development of the Multimedia Super Corridor (problems still exist in terms of enforcement of copyright and IP laws), and foreign-exchange control measures, implemented in September 1998, for their impact on Canadian companies;
advocate restructuring and recapitalization of Malaysian financial institutions, which may open up opportunities for Canadian financial institutions; and
press for an end to the new Buy Malaysian policies of the Government.

Singapore

Overview

With one of the world's freest economies, Singapore presents few barriers to Canadian exporters. In 1999, Canadian exports of goods to Singapore were down 10 percent to $339 million, and imports from Singapore were up 6.2 percent to $1.25 billion. Singapore continues to offer significant opportunities for Canadian exports of goods, services and technologies. Already the region's premier transportation hub, Singapore is investing heavily in positioning itself as a telecommunications and financial hub, and is devoting a large part of its budget to health and education.

Canada's Market Access Priorities for 2000

encourage joint ventures with Singaporean firms in the information, communications and manufacturing technology sectors; and
consider renewing negotiations for air services links with Singapore, with a view to expanding business and tourism travel between our countries (Canadian airline industry developments permitting).

Investment

Inward FDI to Canada from Singapore increased substantially from a total of $213 million in 1997 to $471 million in 1998. Canadian direct investment in Singapore remained relatively stable over the same time period at $2.24 billion in 1997 and $2.20 billion in 1998. Most of the Canadian direct investment in Singapore is in the form of regional offices, primarily in services sectors, such as banking and other financial services. Singapore has set up a US$1-billion technology fund, which private sector firms can access for the development of new products, as long as 30 percent of the company ownership is Singaporean.

The Philippines

Overview

In 1999, Canadian merchandise trade with the Philippines recovered somewhat from 1998's downturn, following the Asia economic crisis, with exports increasing 15.6 percent to $287 million. Imports were up 9 percent, totalling $1.04 billion. The peso has stabilized; GDP growth is forecast to be between 1 percent and 3 percent for 1999; inflation is expected to decline to 7.5 percent by the end of the year.

Over the course of recent years, the Philippines has become a market for a wide range of Canadian goods and services, including agri-food items, machinery and equipment, fertilizers and other commodity products, financial, engineering and other business and professional services. During the administration of President Ramos (which ended mid-year 1998), a program of deliberate and widespread trade and economic liberalization was pursued. This is being continued, perhaps less vigorously, under the administration of President Estrada.

Market Access Results in 1999

The Estrada administration demonstrated a commitment to economic liberalization by lowering tariff barriers, eliminating non-tariff barriers and deregulating key sectors, such as telecommunications.

Canada's Market Access Priorities for 2000

urge continued commitment to economic liberalization, including enactment of stated plans to allow foreign investment in the retail sector and privatization of the energy sector;
reduction of new tariffs imposed as protection for certain industries in the wake of the Asian economic crisis; and
move forward on specific questions concerning IP rights, duty administration, customs valuations and government procurement in the Philippines.

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Last Updated:
2003-02-07

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Important Notices

Opening Doors to the World:Canada's International Market Access Priorities 2000

6. Opening Doors to Asia Pacific

Opening Doors to the World:
Canada's International Market Access Priorities 2000