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Opening Doors to the World
Canada's International Market Access Priorities 2003
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Opening Doors to the Americas
The North American Free Trade Agreement entered into force on January 1, 1994. Designed to foster increased trade and
investment among the partners, NAFTA has brought economic growth and rising standards of living for people in all three
countries. As the 10th anniversary of NAFTA approaches, it is clear that the agreement has proven its value as a means
of stimulating trade, investment and competitiveness.
NAFTA's ambitious tariff-elimination schedule was completed on January 1, 2003, when the final scheduled round of
cuts in tariffs applied to Canada–Mexico and U.S.–Mexico trade was implemented. Canada–U.S. trade has been virtually
tariff-free since January 1, 1998.
Total trade between Canada, the United States and Mexico has increased substantially since NAFTA was implemented.
Canada's total merchandise trade with the United States and Mexico was approximately $579.8 billion in 2002. Two-way
merchandise trade between Canada and Mexico grew 3.4% to reach $15.1 billion in 2002. Our merchandise trade with the
United States reached $564.6 billion in 2002. In terms of Canada's total merchandise exports, 88.1% goes to our NAFTA
partners.
Trade in services among Canada, the U.S. and Mexico has also grown significantly over the first six years of NAFTA
(for which data are available). In 2000, Canada's trade in services with the United States and Mexico was approximately
$76 billion, up from $46 billion in 1994 (an average annual growth of 8.8%). During the same period, the two-way trade
in services between Canada and Mexico has grown at an annual rate of 12.9%, to reach over $1 billion. Our trade in
services with the United States reached $75 billion in 2002, up from $42.3 billion in 1993. In terms of Canada's total
services exports, 61% goes to our NAFTA partners.
Canada's attractiveness to foreign and domestic investors has also improved since NAFTA entered into force in 1994.
Total foreign direct investment into Canada reached $321 billion in 2001, more than 67% of which comes from our NAFTA
partners. Foreign direct investment into Canada from the United States increased to $215 billion in 2001, while investment
from Mexico reached $138 million in 2000. Canadian direct investment in the NAFTA countries has also increased, reaching
$198 billion into the United States in 2001 and $4 billion into Mexico.
The NAFTA Commission, which directs the implementation of NAFTA, consists of Canada's Minister for International Trade,
Pierre Pettigrew, the U.S. Trade Representative, Robert Zoellick, and Mexico's new Secretary of the Economy, Fernando
Canales Clariond. At the last Commission meeting on May 28, 2002, the trade ministers reaffirmed their determination to
complete the full implementation of the agreement according to the established schedule, and directed officials to review
the prospects for additional trilateral work that could further stimulate trade. The ministers also directed experts
to identify shared priorities concerning the operation of Chapter 11 (Investment) and to continue developing
recommendations as appropriate.
Looking Forward
NAFTA incorporated a work program that allows the parties to pursue a number of improvements with a view to keeping
the agreement fresh and relevant, and actively seeks to remove existing impediments to trade and investment. Canada's
priorities within this context are those activities that can provide important benefits for business (e.g. simplification
of rules of origin, temporary entry provisions for business persons, cross-border trade in services). Officials will
continue to identify existing impediments to trade and investment and conduct the necessary work to eliminate them
through NAFTA.
Settling Disputes Under NAFTA
NAFTA's dispute settlement process provides the necessary mechanisms to resolve the relatively few disputes that
arise in such a large trade and economic relationship. When the governments concerned cannot resolve their differences
through NAFTA committees and working groups, or through other consultations, NAFTA provides for expeditious and effective
dispute settlement procedures. Where rights and obligations under the World Trade Organization (WTO) are at issue,
NAFTA parties also maintain the option of recourse to WTO dispute settlement procedures as an alternative to NAFTA
procedures.
Chapter 20 includes provisions relating to the avoidance or settlement of disputes over the interpretation or
application of NAFTA, except for trade remedy matters covered under Chapter 19. Chapter 19 of NAFTA provides a unique
system of binational panel review as an alternative to judicial review for domestic decisions on anti-dumping and
countervailing duty matters. There are also separate dispute settlement provisions for matters under Chapters 11
(Investment) and 14 (Financial Services).
From November 2001 to November 2002, two Chapter 19 panels reviewing decisions made by Canadian agencies involving
U.S. products remained active. These decisions involved dumping and injury cases relating to iodinated radiographic
contrast media. During the same period, two panel proceedings involving household appliances (anti-dumping and injury)
were completed, with two decisions issued.
As well, six requests for panel review of decisions made by U.S. agencies regarding Canadian products were filed.
The decisions involved softwood lumber (anti-dumping), softwood lumber (countervailing duties), softwood lumber (injury),
greenhouse tomatoes (anti-dumping), greenhouse tomatoes (amended anti-dumping) and steel wire rod (countervailing duties).
Additionally, four panel reviews of decisions made by U.S. agencies and involving Canadian products remain active,
three relating to pure and alloy magnesium and one to carbon steel products. During the same period, five panel decisions
were issued involving pure and alloy magnesium reviews, and two proceedings involving greenhouse tomatoes were terminated.
One Extraordinary Challenge Committee (ECC) proceeding involving the United States and Mexico, and relating to grey
Portland cement and clinker from Mexico, is still active (panel reports can be found at
www.nafta-sec-alena.org).
North American Biotechnology Initiative (NABI)
On October 30 to 31, 2002, officials and regulators from Canada, Mexico and the United States held the inaugural
meeting of the North American Biotechnology Initiative. Co-led by Agriculture and Agri-Food Canada and the Canadian
Food Inspection Agency, the meeting was also attended by representatives from Health Canada, the Department of Foreign
Affairs and International Trade, the National Research Council, Environment Canada and the Canadian Grains Commission.
The meeting initiated a policy dialogue between the three governments on emerging issues and formalized regular
information exchanges on more technical issues. The participants agreed to exchange information on such matters as
regulatory regimes, contacts within respective agencies, existing collaborations (both public and private), testing
and sampling methodologies, labelling regimes, risk assessment approaches, capacity building and transparency.
Three working groups (Science Issues, Regulatory Issues and Trade and Marketing Issues) have agreed on draft programs
of work, and work has begun on program items. Mexico has agreed to host the next meeting of NABI in May 2003.
Overview
Canada and the United States remain each other's largest trading partners, moving about $1.9 billion worth of
goods and services across the border each day. In 2002, Canada exported $346.5 billion in goods to the United States
and imported $218.2 billion in return. Services exports totalled $34.4 billion in 2002, with corresponding imports at
$40.5 billion. Fully 87.4% of Canadian merchandise exports are destined for the United States. Since the implementation
of the Free Trade Agreement (FTA) in 1989, two-way trade has more than doubled. Between 1992 and 2002, two-way trade
in goods increased approximately 13% per year.
U.S. direct investment in Canada has increased from approximately $85 billion in 1991 to $215 billion in 2001,
while Canadian direct investment in the United States has grown from $63 billion to $198 billion in the same period.
Canada's trade relationship with the United States is paramount for Canada. Opportunities exist for Canadian business
in virtually every sector. To realize these opportunities, the Department of Foreign Affairs and International Trade
(DFAIT) introduces small and medium-sized enterprises to the market, with a particular focus on helping women, young
entrepreneurs and Aboriginal firms to begin business relationships with the United States. The New Exporters to Border
States (NEBS) program has been highly successful in this regard, having helped 14,400 companies make their first foray
into the U.S. market. The Canadian government also encourages Canadian exporters that have succeeded in more than one
region of the United States to "graduate" to other international markets. For further information, please visit
DFAIT's
Canada–U.S. Relations Web site.
The government also aims to attract and expand investment from the United States and encourage strategic alliances with
U.S. companies. The government's plan is to promote investment through the use of a more integrated, sector-focused
approach that builds on the cooperation between DFAIT and its Team Canada Inc partners.
Within the United States, many individual states have economies that are larger than those of whole countries. There
are also different cultural and economic influences at play in different areas of that country. Over the past year,
several federal Cabinet ministers and deputy ministers have made visits to important U.S. regions to help forge
relationships with government and business leaders. These initiatives are necessary to advance Canadian priorities
and highlight the attractiveness of Canada as an investment destination.
Market Access Results in 2002
- On December 6, 2002, Deputy Prime Minister Manley and Governor Ridge reported on progress made on the 30-point
Action Plan of the Smart Border Declaration and announced their commitment to deepening border cooperation in several
areas under Phase II. They agreed to bilateral cooperation in the areas of biosecurity, science and research.
- Canada and the United States established the Free and Secure Trade (FAST) Program, and reinstated the NEXUS program
for low-risk travellers while expanding it to most major crossings.
- On January 1, 2003, Canada and the United States liberalized the NAFTA rules of origin for seven products making it
easier for exporters of these products to meet the rules of origin and benefit from duty-free treatment under NAFTA.
(Mexico will implement these changes later in 2003.)
- The proposed Breaux-Thomas amendment, which would have given the Administration discretion in restricting sugar
product imports, was dropped from the 2002 U.S. Trade Promotion Authority Bill.
- Canada and the United States have agreed on detailed binational work plans to protect shared critical infrastructure
in the energy, telecommunications and transportation sectors.
Canada's Market Access Priorities for 2003
- Balance the priorities of security and law enforcement with the free movement of legitimate goods, services and
people across our common border.
- Successfully resolve the softwood lumber dispute with the United States
- Maintain market access to the United States for Canadian wheat.
- Continue to oppose country-of-origin labelling provisions of the U.S. Farm Bill in a variety of bilateral and
multilateral forums in order to advance Canadian trade interests and concerns.
- Continue to press various U.S. states to ensure that Canadian firms are taxed in a fair, consistent manner, in
accordance with international taxation norms.
- Continue to monitor closely and respond to key measures that may distort trade and investment decisions in the North
American market.
- Continue to oppose the extraterritorial application of U.S. laws.
- Extend Canada's network of representation in the U.S. for greater strategic engagement on investment and trade issues.
- Continue engagement on the NAFTA Chapter 11 clarification initiative.
- Ensure that proposals by U.S. Customs and the U.S. Food and Drug Administration (FDA) for prior notice of arrival
are implemented in a way that achieves security objectives while avoiding unnecessary disruption to trade.
The remainder of this section provides additional detail on key U.S. market access issues for Canada over the next
year. It should not be regarded as an exhaustive inventory of obstacles faced by Canadian firms doing business in the
United States, nor as an exclusive list of issues that the Canadian government will pursue.
Canada's Advocacy in the United States
In May 2002, the government agreed to contribute $20 million to intensify advocacy in the U.S. for Canada's trade
interests, particularly in the areas of softwood lumber, agriculture and energy. The bulk of the funding is a $17-million
grant to the Forests Products Association of Canada to support the Canadian industry's advocacy and advertising efforts
on softwood lumber. The aim is to make optimal use of all channels of influence to reach carefully selected decision
makers, fighting irritants before and when they arise. DFAIT will work closely with other government departments and
support enhanced advocacy by provincial and territorial governments, municipalities, parliamentarians, industry,
academia and unions. In a similar vein, Agriculture and Agri-Food Canada is mounting a significant trade advocacy
initiative, the predominant component of which will focus efforts on the U.S.
In the February 2003 budget, Finance Minister Manley announced spending of $11 million over the next two years to
bolster Canada's representation and trade promotion activities in the United States.
Working Together to Improve Access
Smart Border Declaration
On December 12, 2001, Deputy Prime Minister Manley and Governor Ridge signed the Smart Border Declaration and
immediately began implementing a 30-point action plan to build a smart border for the 21st century: a border that
is secure and efficient, open for business but closed to terrorists.
Prime Minister Chrétien and President Bush met in Detroit, Michigan, on September 9, 2002. At that meeting, they issued
a joint statement and a smart border progress report that included announcements on the Free and Secure Trade (FAST)
and NEXUS programs and progress on a number of security related items (www.can-am.gc.ca).
The FAST program partners the governments of Canada and the United States with the private sector to ensure a secure
supply chain for low-risk goods. FAST will make many cross-border commercial shipments simpler, cheaper and subject to
fewer delays while enhancing security. FAST went into operation in December 2002 at the following crossings:
Douglas–Blaine, Windsor–Detroit, Sarnia–Port Huron, Fort Erie–Buffalo, Queenston–Lewiston and Lacolle–Champlain.
The NEXUS program provides dedicated lanes for pre-approved, low-risk travellers. NEXUS is already running at four
border crossings, and a joint NEXUS application centre is now open in Detroit. NEXUS has been operating at the
Windsor–Detroit and Fort Erie–Buffalo crossings since January 2003, and it will be expanded to all other high-volume
crossings between the two countries by the end of 2003. A NEXUS-Air program is also in development and will be piloted
in airports during 2003.
Also of note from the September 9, 2002, summit was the direction given to Deputy Prime Minister Manley and Governor
Ridge to continue overseeing implementation of the Smart Border Action Plan and to identify and initiate work in other
areas where close cooperation serves our mutual interests. During the coming months, border agencies will continue to
work on the action plan. Initial work is also under way on an additional five action items: biosecurity, research and
development, maritime security, synchronized smart card technology for truck drivers and interoperable communications.
Looking Ahead
Recent U.S. legislative and/or regulatory activity has resulted in a number of border-related issues that
pose concerns for Canada. These issues include the following:
- a 24-hour advance manifest rule: a requirement (introduced by U.S. Customs) that carriers provide selected marine
cargo manifest information to Customs at least 24 hours in advance of loading (the U.S. is considering imposing similar
requirements on other modes of transportation);
- Provisions requiring the registration of foreign facilities that manufacture, process, pack or hold food for human
or animal consumption (which also applies to U.S. domestic facilities), and requiring pre-notification to the FDA of
foreign food product shipments before they enter the U.S.
- U.S. entry/exit tracking: a requirement under the U.S. Patriot Act (October 2001) that the Attorney General develop
an entry/exit tracking system and a biometric standard—U.S. officials are demonstrating a firm commitment to implementing
this measure on the land border by the end of 2004; and
- U.S. restrictions on Canadian transportation companies handling explosives (which may be inconsistent with U.S.
obligations under NAFTA): Canada has been actively engaging the U.S. Administration to ensure that it recognizes the
costs and challenges of implementing such measures. We are also continuing to monitor other initiatives that may affect
legitimate cross-border flows of goods, investment and persons.
Improving Access for Trade in Goods
Softwood Lumber
Following the expiry of the Canada–U.S. Softwood Lumber Agreement on March 31, 2001, the U.S. Department of Commerce
(DOC) initiated countervailing and anti-dumping investigations of certain softwood lumber products from Canada. On May 22,
2002, following these investigations, the DOC imposed final countervailing and anti-dumping duties averaging 27.22%.
The DOC excluded the Atlantic provinces from the countervailing duty investigation. Consequently, all Atlantic producers
pay an anti-dumping duty of only 8.43%.
In response to the U.S. trade actions, the Canadian government is taking all actions possible to protect the interests
of the Canadian lumber industry, its workers and lumber communities across the country. Working closely with provinces
and the lumber industry, the federal government has pursued with the United States a long-term, policy-based resolution
of the trade dispute. Should such a resolution be possible and result in the elimination of the countervailing and
anti-dumping duties, an interim measure such as a border tax may be required to allow provinces time to implement
forest policy changes.
Canada is continuing to pursue its rights under the dispute settlement provisions of the WTO and NAFTA. In total,
six challenges of the U.S. trade actions have been initiated before the WTO and under NAFTA.
On November 1, 2002, a WTO panel adopted the final report on the U.S. preliminary subsidy determination. The panel
ruled that the U.S. measure is contrary to its WTO obligations. A subsidy consists of a financial contribution that
confers a benefit. The WTO panel found that provincial stumpage programs are a "financial contribution" under the
Subsidy Agreement. However, the panel also found that the United States cannot use cross-border benchmarks to measure
whether this financial contribution provides a "benefit" to lumber producers. The U.S. did not appeal the report of
this panel. A subsequent WTO panel has been established on the U.S. final subsidy determination.
The Canadian government has announced various programs to assist Canada's forest industry, as well as the communities
and workers affected by the dispute. The measures announced to date amount to over $356.5 million dollars. They include
funds for displaced workers under expanded employment insurance programs, community capacity building, competitiveness
initiatives, research and development programs, a boreal forest research consortium, and an awareness campaign in the
United States.
The Government of Canada will continue to pursue unrestricted access to the U.S. market for Canadian softwood lumber
as a top market access priority.
Wheat
On September 13, 2002, several U.S. wheat producer groups filed petitions with U.S. authorities seeking the imposition
of anti-dumping and countervailing duties on imports of hard red spring wheat and durum wheat from Canada. Bilateral
consultations under Article 13 of the WTO Agreement on Subsidies and Countervailing Measures were held on October 1
in Washington. On October 23, the U.S. Department of Commerce initiated the requested anti-dumping and countervailing
duty investigations. The U.S. International Trade Commission reached an affirmative preliminary injury determination
with respect to both products on November 19. On March 4, 2003, the Department of Commerce issued its preliminary
determinations in the countervail case, find two countervailable subsidies out of a range of programs examined.
Provisional duties of 3.94% were announced for imports of Canadian durum and hard red spring wheat. The Canadian
government will continue to defend its wheat sector policies for the duration of the investigations.
U.S. Farm Bill
Canada has expressed serious concerns about the Farm Security and Rural Investment Act, otherwise known as the
Farm Bill, particularly the increase in trade-distorting domestic support and the mandatory country-of-origin labelling
requirements. The domestic support increases run counter to the agreed objective in the WTO agriculture negotiations to
substantially reduce trade-distorting domestic support. Canada is carefully examining the consistency of the Farm Bill
measures with U.S. commitments under the World Trade Organization. We will continue to follow developments and make
our concerns known to Congress and the Administration as the legislation is implemented.
Agricultural Subsidies
Canada is increasingly concerned about the high and rising levels of domestic support to agriculture in the United
States, especially to grains and oilseeds production. This support contributes to the worldwide supply–demand imbalance
that keeps prices down.
All WTO members are pursuing the objective of substantial reductions in trade-distorting domestic support, further
to the WTO Ministerial Declaration in Doha; however, developments in the United States do not appear to be consistent
with that undertaking. Similarly, all WTO members committed themselves in Doha to reductions, with a view to phasing out,
of all forms of export subsidies. Canada and many other WTO members take the view that we also need to address the export
subsidy elements of other forms of export assistance, such as export credits, market promotion and development activities,
and certain types of food aid. Canada also remains concerned about the possibility of increased use by the United States
of export subsidies in third-country markets for certain commodities.
Country-of-Origin Labelling
The Farm Bill creates new country-of-origin labelling requirements for beef, lamb, pork, fish, perishable agricultural
commodities and peanuts sold at U.S. retail outlets. The legislation sets out very restrictive criteria that must be met
before covered commodities can be labelled as originating in the U.S. Guidelines for an interim two-year voluntary
period came into effect on October 11, 2002. These guidelines are scheduled to become mandatory as of September 30, 2004.
The new U.S. legislation requires U.S. retailers to display country-of-origin information at the final point of sale
to consumers for all (imported and domestic) covered commodities. Canada maintains that the law is fundamentally flawed
and places onerous costs on industry with no real consumer benefits. Country-of-origin labelling may also result in price
distortions that would hurt all sectors of the red meat industry, and compliance costs could reduce the North American
industry's competitiveness on world markets by increasing its overall cost structure. The Canadian government,
in partnership with provinces, industry and U.S. allies, will continue advocacy efforts in the U.S. in order to
build awareness of the disruption that the country-of-origin labelling provision will cause should it become mandatory
and to urge that the provision be repealed.
Sugar-Containing Products Monitoring Process
Over the last several years, Canada has intervened with the U.S. Administration and members of Congress to express
concerns over U.S. attempts to legislate increased trade restrictions on sugar syrups and sugar-containing products.
Of particular concern was the proposed Breaux-Thomas amendment attached to the 2002 U.S. Trade Promotion Authority Bill.
This amendment would have granted clear legal authority to the Secretary of Agriculture to halt imports of products deemed
to be produced solely to circumvent U.S. customs law without regard to due process or U.S. international trade
obligations.
The final provisions in the 2002 Trade Act did not include language enabling the Administration to halt imports of
products deemed to be circumventing U.S. customs law. Instead, the Act directs the Secretary of Agriculture and the
Commissioner of Customs to establish a monitoring program to identify existing or likely circumvention of the tariff
rate quotas in Chapters 17, 18, 19 and 21 of the Harmonized Tariff System. These chapters cover a wide range of products
including cocoa preparations, sugar confectionery, cereal preparations, pastry cooks' products, soups, sauces and ice
cream. The Secretary and Commissioner are to report their findings to Congress and the President, including information
on developments and trends in trade in the covered products, as well as indications of possible circumvention. The
Secretary and Commissioner will also include recommendations for ending such circumvention.
We will watch the implementation of this monitoring system closely, to ensure that Canadian interests are protected.
Rules of Origin
On January 1, 2003, Canada and the United States implemented measures to liberalize the NAFTA rules of origin
applicable to seven products, including alcoholic beverages and petroleum/topped crude oil. The changes will become
effective in Mexico following ratification by the Mexican Senate later in 2003. These changes, requested by industry
associations in Canada, the United States and Mexico, will make it easier for exporters to meet the rules of origin
and benefit from duty-free treatment under NAFTA. This will increase the competitiveness of Canadian exporters,
in particular the petroleum industry, which exported over $4 billion worth of petroleum oils to the United States
in 2001.
Electricity
As outlined in the U.S. National Energy Policy (Cheney Report), the U.S. Administration supports increased
cross-border trade in electricity and reform of domestic mechanisms affecting trade. Congressional efforts to
restructure the sector and implement Administration initiatives remain stalled by concerns arising from California's
failed deregulation and disagreement over federal and state jurisdiction. Canada continues to strongly oppose proposals
for U.S.-imposed, continent-wide systems reliability standards. Rather, it favours an industry-based, binational
self-regulating reliability organization, which would develop reliability standards while preserving the respective
authority of Canadian and U.S. regulators. Another issue with the potential to affect trade in electricity is the new
reciprocity provisions under development in U.S. regulations; Canada continues to raise concerns about these provisions.
Canada remains concerned over proposals in recent U.S. federal and state legislation to exclude Canadian-origin
renewable energy resources and hydroelectric power from U.S. renewable energy programs. Canadian advocacy in this sector
has raised U.S. awareness of a North American electricity market and the impact that discriminatory measures could have
on this market. Canada continues to monitor developments in U.S. renewable energy standards.
While ongoing restructuring may create risks for Canadian electricity suppliers in the U.S. market, opportunities for
increased trade are also available, influenced by new markets and market structures, innovation in services and expanding
energy demand.
Pipeline Subsidies
Canada is concerned over proposed subsidies for a new pipeline to bring natural gas from Prudhoe Bay, Alaska, to
the "lower 48" states. Any floor price or loan guarantees to industry would affect the economics of a pipeline route,
distort energy markets and negatively impact Canadian projects in the Mackenzie Delta.
Canada strongly supports natural gas development in Alaska, and we are necessarily partners in that development
because any pipeline from Alaska to the lower 48 states must go through Canada. However, the private sector should
ultimately decide on the nature and timing of such a pipeline. As well, in Canada's view the private sector is best
suited to decide its route, subject to regulatory and environmental review procedures. The Bush Administration has
also adopted a route-neutral position on the Alaska pipeline project.
Hemp Products
On October 9, 2001, the U.S. Drug Enforcement Agency (DEA) published interpretative, proposed and interim rules
regarding hemp foods and oil. These rules, which were to be effective immediately, banned hemp food products that
use ingredients (hemp seed or oil) containing any THC (tetrahydrocannabinol) and required hemp body-care companies
to file for exemptions with the DEA to secure hemp oil imports. In April 2002, a hearing was held at the U.S. Court
of Appeal for the Ninth Circuit to determine whether federal law may classify hemp food containing THC under the
Controlled Substances Act (CSA). The case is being reviewed by a three-judge panel, and a final decision is expected
in early 2003. The Canadian government is monitoring this situation carefully.
Monitoring Developments Affecting Canadian Interests
Record of Understanding on Agriculture
The December 4, 1998, Canada–U.S. Record of Understanding (ROU) and Action Plan has continued to contribute to the
management of bilateral agricultural trade relations. The Consultative Committee on Agriculture established under the
ROU continued to hold its periodic meetings in 2002, as did the Provinces/States Advisory Group. Intensified
communications resulting from these meetings have helped both countries to better understand bilateral trade issues
and have accelerated work to define solutions to emerging problems. The Consultative Committee on Agriculture also
agreed to a renewed work plan to continue to address issues of bilateral interest.
Real benefits to both countries have resulted from these cooperative efforts. For example, Canadian and U.S. agencies
responsible for regulating pesticides have agreed on work plans aimed at increasing information exchange and harmonizing
their regulatory systems. Other positive aspects of the ROU include:
- the in-transit grain rail program, which moved 7,037 rail cars (about 650,000 tonnes) of U.S. wheat, barley and
oats through Canada between January and October 2002, compared with 1.1 million tonnes in all of 2001, almost 700,000
tonnes in 2000 and about 650,000 tonnes in 1999; and
- the joint publication of data on U.S. and Canadian cattle inventories.
The Consultative Committee on Agriculture will continue to serve as a key mechanism to address agricultural
trade issues in partnership with the provinces and key stakeholders.
Forest Certification
There is ongoing demand in the U.S. for forest products that are certified as having been manufactured using wood
from sustainably managed forests. The Canadian forest industry is responding through increased certification of our
forests. As of December 2002, more than 113 million hectares of forest in Canada had been certified under one of the
four certification and environmental management systems available in the country. This performance is clear evidence
of broad industry commitment to sustainable forest management, meeting customer needs and assuring Canadians that our
forests are well managed.
Canada is broadly supportive of certification as a voluntary, market-based tool to promote sustainable forest
management. However, we want to ensure that certification is not used as a market access barrier. In particular,
Canada would be concerned by any measure requiring mandatory labelling for forest products based on non-product–related
process and production methods. Also of concern are procurement policies that specify that all products must carry the
label of one specific certification scheme to the exclusion of other equivalent approaches. As well, Canada remains
vigilant to protect against raw material specifications based on local conditions or inappropriate criteria. We will
continue to monitor our access to key markets with a view to ensuring that certification remains a voluntary marketplace
activity and that criteria consistent with Canadian forest values are used to evaluate Canadian products.
Certification best supports sustainable forest management when all equivalent certification schemes are recognized
in the market. For this reason, we support those who propose equivalency and mutual recognition of various similar
certification schemes. It is also Canada's view that a diversity of certification systems is necessary to reflect
the variety of producers' circumstances and to safeguard against the risks associated with monopolies. In this
context, Canada will continue to encourage and support the recognition of a diversity of forest certification systems.
Biosecurity Measures
On June 12, 2002, the U.S. Public Health Security and Bioterrorism Preparedness and Response Act of 2002 was
signed into law. The Act was designed to improve the ability of the U.S. to prevent, prepare for and respond to
bioterrorism and other public health emergencies. In early February 2003, the Food and Drug Administration
issued proposed regulations to implement the legislation. Written comments are due by April 4, 2003. The FDA
plans to issue final rules by October 12, 2003, after considering the comments it receives, and to implement
them on December 12, 2003. Canadian industry has raised concerns about provisions requiring the registration of
foreign facilities that manufacture, process, pack or hold food for human or animal consumption
(which also applies to U.S. domestic facilities), and requiring pre-notification to the FDA of foreign food product
shipments before they enter the U.S. The Canadian government is consulting Canadian industry on comments to submit to
the FDA. The government's submission will focus on how the FDA can meet its statutory obligations, while minimizing the
potential trade impact on Canada.
Industrial Alcohol
U.S. regulations require that all industrial alcohol must pass through a U.S.-registered Distilled Spirits Plant
(DSP) for testing to avoid an excise tax of $13.50 per proof gallon on all alcohol entering the U.S. market. Because
most American manufacturers of industrial alcohol are already recognized as DSPs, the regulations provide an unfair
competitive advantage to U.S. producers, and enable U.S. DSPs to acquire privileged information about their Canadian
competitors. Canada has informed the Office of the U.S. Trade Representative of our view that the DSP system is
inconsistent with U.S. obligations under NAFTA and the WTO agreements with respect to national treatment and
conformity assessment procedures. Discussions with the U.S. government are ongoing in an effort to resolve this issue.
U.S. State Taxation Issues—Pennsylvania
Canadian trucking companies and other entities face state taxation retroactive to 1992. Taxes will be assessed
on the basis of business activity questionnaires prepared by the state. During 2002, in response to representations
by the Consulate General in Buffalo and the Canadian Trucking Alliance, the state agreed to waive penalties and reduce
retroactivity to 1997, or five years, for firms that voluntarily disclose their activity between September 1
and December 31, 2002. Questionnaires will be distributed early in 2003, including to some 700 Canadian firms already
targeted to date.
Only income-based taxes are recognized by the Canada Customs and Revenue Agency as creditable against income tax in
Canada. The imposition of taxes that are not based on income carries an element of double taxation that has a negative
impact on Canadian companies with business in Pennsylvania. Moreover, Canada is also concerned over the retroactive
imposition of taxes on a somewhat arbitrary basis, as there is evidence to suggest that the amount of tax claimed
differs considerably among firms with roughly similar profiles and business volumes in the state.
Pennsylvania's Gross Receipts Tax was abolished in 1998, and the Capital Stock/Franchise Tax (called a "job killer" by
a previous governor) is being phased out, but not until 2008 or 2009. Canada has made representations to the state that,
in addition to our concerns above, the relatively small amount of tax claimed does not justify the significant
administrative burden either for the state or for the firms involved. Canada will pursue the matter with the state's
governor-elect early in the new year.
Marine Mammal Protection Act (MMPA)
The U.S. Marine Mammal Protection Act of 1972 prevents the import of most marine mammal products into the U.S.,
including Canadian seal products. The Act provides for a waiver system that allows the import of marine mammal products
for specific purposes if the harvesting will not disadvantage the affected species or stock. However, because the U.S.
certified Canada under the Pelly Amendment in 1996, U.S. officials cannot consider any MMPA waiver request from Canada.
Sealing is a legitimate use of a renewable resource. The populations are stable and not endangered (there are an
estimated 5.2 million harp seals and 460,000 hooded seals in Canada). Canada believes that the MMPA and the certification
of Canada under the Pelly Amendment are inconsistent with U.S. international trade obligations. We have communicated our
concerns to the U.S. Administration and will continue to address this ban over the long term.
Other Issues
Customs and Administrative Procedures
Much of the work on customs and administrative procedures has been carried out through the related initiatives of the
30-point action plan of the Smart Border Declaration. Both Canada and the United States recognize that public security
and economic security are mutually reinforcing, and we are working together to ensure a secure border that will not
negatively affect the flow of legitimate trade and travel.
Canada and the United States have agreed to align, to the maximum extent possible, their customs commercial procedures.
Using risk management tools and in partnership with the private sector, the Free and Secure Trade program will expedite
the clearance of low-risk cross-border shipments by reducing information requirements and establishing dedicated FAST
lanes where possible. The program became operational at the end of 2002.
Beginning in March 2002, Canada and the United States began cooperating on a new program to identify and screen
high-risk marine cargo before it arrives in either country. Canadian customs officers are working in Newark and
Seattle–Tacoma to target containers arriving at those ports and ultimately destined for Canada. Likewise, U.S.
customs personnel are doing the same work in Vancouver, Montreal and Halifax for containers that will be transhipped
to the United States.
The NEXUS program, which expedites clearance for pre-approved, low-risk travellers, has been expanded to border
crossings along the British Columbia–Washington border, as well as to all major border crossings in southern Ontario,
Michigan and New York (by the end of 2002). The two countries continue to work together to develop common standards
for using biometric identifiers such as fingerprints, facial recognition and iris scanning.
Intellectual Property
Under Section 337 of the U.S. Tariff Act of 1930, imported products that are alleged to infringe upon U.S.
intellectual property rights can be barred from entering the United States by the U.S. International Trade Commission.
Section 337 provisions contain more direct remedies against alleged infringers than those available in U.S. domestic
courts, and the administrative procedures in the U.S. International Trade Commission can be more onerous. U.S.-based
alleged infringers face proceedings only in the courts, whereas non-U.S.–based importers may face proceedings both in
the courts and the U.S. International Trade Commission.
In 1989, a GATT panel found that Section 337 violated GATT obligations. The Uruguay Round implementing legislation
has removed some of the inconsistencies with new WTO Trade-Related Aspects of Intellectual Property Rights obligations.
However, Section 337 complaints are still being brought against Canadian companies, which thereby face additional
procedural burdens in defending against allegations of intellectual property infringements. The Canadian government
will continue to monitor specific cases closely, including potential international trade disputes on the matter, in
order to determine what steps might be taken to ensure that Canadians are treated in accordance with U.S. international
trade obligations.
Systemic Trade Remedy Issues
Canada continues to monitor trade remedy developments in the United States in order to ensure that any new rules,
and the implementation of existing ones, conform with U.S. international trade obligations. In this regard, Canada
has made specific representations regarding clarification of U.S. Department of Commerce practices regarding duty
assessments that could have serious adverse consequences for many Canadian exporters in future anti-dumping
investigations. Canada has also provided comments on the U.S. import monitoring system for steel. Finally, we have
made numerous representations to U.S. authorities on the so-called U.S. Byrd Amendment and have joined with other
countries in initiating WTO dispute settlement procedures on the amendment.
Byrd Amendment
On October 28, 2000, President Clinton signed into law the Agriculture, Rural Development, Food and Drug Administration,
and Related Agencies Appropriations Act, 2001. The Continued Dumping and Subsidy Offset Act of 2000 (Byrd Amendment)
was part of that Act. The legislation provides that domestic producers who support petitions for anti-dumping and/or
countervailing duty investigations may be eligible to participate in the distribution of duties collected as a result
of the imposition of anti-dumping and/or countervailing duty orders.
Canada believes that the amendment is a fundamental and misguided change in policy that could have unfortunate
consequences for international trade in general and the administration of trade remedy law in particular. It also
believes that these payments are not consistent with the WTO agreements governing anti-dumping and subsidies and
countervailing measures. Accordingly, Canada, along with a number of other countries (European Commission countries,
Australia, Brazil, Chile, India, Indonesia, Japan, Korea, Mexico and Thailand), has challenged the Byrd Amendment
before the WTO.
On July 17, an interim panel report concluded that the Byrd Amendment is inconsistent with the WTO Anti-Dumping and
Subsidies and Countervailing Measures agreements and therefore should be removed. The final report was circulated to
all WTO members on September 16, 2002. On October 18, 2002, it was appealed, but the WTO Appellate Body upheld the
finding in a January 16, 2003, decision. The United States will have a reasonable period of time to comply with those
findings.
U.S. Trade Remedy Investigations on Canadian Goods
In 2002, the U.S. initiated anti-dumping and countervailing investigations on two wheat products from Canada,
durum wheat and hard red spring wheat. These investigations are ongoing. Also in 2002, U.S. authorities received a
petition alleging dumping of cold-water shrimp from Canada. Following representations by the Canadian government to
the U.S. Department of Commerce, the petitioners withdrew their complaint, which terminated the case. U.S. authorities
also concluded their trade remedy investigations involving imports of tomatoes, mussels, wire rod and steel products
into Canada. With respect to the anti-dumping investigation into tomatoes, the U.S. International Trade Commission
found that tomato exports to the United States were not injurious to the domestic industry and terminated proceedings.
The U.S. Department of Commerce terminated the anti-dumping investigation into mussels from Canada, after the petitioner
withdrew the complaint. With regard to the anti-dumping and countervailing investigations into steel wire rod, the U.S.
International Trade Commission, in making a final affirmative injury determination, confirmed the application of
countervailing and anti-dumping duties on steel wire rod from Canada.
Finally, on March 5, 2002, President Bush announced that the United States would impose tariffs of up to 30% on a
number of steel products, restricting offshore access for imports into the U.S. market. However, imports from Canada
and Mexico were excluded from any restriction under the provisions of the North American Free Trade Agreement.
It is worth noting that the government continues to participate in the annual administrative reviews conducted by the
U.S. Department of Commerce regarding the countervailing duties on Canadian magnesium. In addition, Canada is involved in
the New Shipper Review for magnesium producer Magnola. Developments in NAFTA challenges, which have been launched as a
result of duties imposed on Canadian exports of magnesium to the U.S., are also monitored by the government.
Government Procurement
Canada will continue to press the United States to further open its procurement markets to Canadian suppliers.
Currently, U.S. government exceptions under NAFTA Chapter 10 and the WTO Agreement on Government Procurement prevent
Canadian suppliers from bidding on a broad range of government contracts in sectors of key importance. Especially
onerous are the set-aside programs for small and minority-owned businesses and the Buy America provisions. In addition,
both longstanding and ad hoc legislative provisions, as well as conditions attached to funding programs, impede access
for Canadian suppliers. The need for progress in both assuring and improving access for Canadian suppliers at the U.S.
federal, state and local levels remains a key issue for provincial governments in determining whether to offer to open
Canadian provincial and local government markets.
Small Business Set-Asides
The Canadian government remains concerned about the extensive and unpredictable use of exceptions under NAFTA Chapter
10 and the WTO Agreement on Government Procurement for small business set-asides. Canadian suppliers face the ever-present
possibility that government markets that they have successfully developed and supplied may be closed through the
application of the set-aside exception. The definition of a U.S. small business varies by industry, but it is typically
an entity with fewer than 500 employees in a manufacturing firm (of up to 1,500 employees in certain sectors) or annual
revenues of up to US$17 million for services firms—determined by NAICS (North American Industry Classification System)
code. U.S. federal departments and agencies are not meeting their target of awarding 23% of contract dollars to small
business. This has resulted in new directives on enforcement of the existing programs and may lead to pressure to create
new programs. In addition, the U.S. government requires contractors and major subcontractors on projects worth more than
US$500,000 to include plans to subcontract work to U.S. small business. Canada is concerned that the use of such
subcontracting plans impedes Canadian access to the U.S. market. We will continue to press the U.S. Administration on
this matter. The U.S. Small Business Administration reports that
"based on FY 2000 data, agencies are awarding approximately 38 percent of Federal procurement prime and subcontract dollars to small businesses." This represents a
significant restriction of market access for Canadian business.
Buy America
Buy America provisions are applied extensively to U.S. federal government procurement that is not covered by NAFTA
or the WTO. Since these trade agreements require equal treatment of Canadian offers only on direct purchases by the U.S.
federal government, a wide range of other federal government procurement contains Buy America provisions.
Buy America Provisions in Federally Funded Sub-Federal Procurement
Buy America provisions are attached by the U.S. federal government to federally funded sub-federal procurement (i.e.
by making such provisions a condition of funding to state and municipal organizations). Canada continues to seek
improvements to the limited access available to this important U.S. procurement market, which includes transit, highway
and aviation projects.
Almost all large transportation contracts in the United States are federally funded, but they are administered by state
and local government or private sector organizations. The Transportation Equity Act for the 21st Century (known popularly
as TEA-21) provides funding for these projects through fiscal year 2003. The Federal Highway Administration (FHWA) and
Federal Transit Administration grant TEA-21 funds to state and local governments and transportation authorities for
transportation projects on condition that U.S. material and equipment are used. Projects funded by the FHWA require all
iron and steel products and their coatings to be 100% U.S.-manufactured. Projects funded by the Federal Transit
Administration require all steel and manufactured products to have 100% U.S. content and be 100% U.S.-manufactured.
Rolling stock (trains, buses, ferries, trolley cars, etc.) components must have 60% U.S. content, with final assembly
occurring in the United States. The codification, in 1998, of a definition of "final assembly," which was formerly
left to the discretion of the procuring organization, has resulted in a further narrowing of the opportunities for
Canadian suppliers to participate in such projects.
Similar conditions prevail for airport projects that receive funds from the Federal Aviation Administration as
authorized by the Airport and Airways Facilities Improvement Act. Such projects require that all steel and manufactured
products have 60% U.S. content and that final assembly occur in the United States. Canada will continue to press for
improved access to procurement markets in these areas.
State and Local Government Preferences
A wide variety of procurement preferences exist at the state and local levels. For example, in 2000, New York State
amended legislation resulting in the addition of Ontario and Quebec suppliers to a list of several U.S. states whose
suppliers are excluded from New York State procurement. Ontario and Quebec suppliers were removed from this list in 2001.
In addition, many U.S. federal government Buy America provisions are included in state and local procurement when federal
funding is provided. Canada remains concerned that access for Canadian suppliers is constrained and unpredictable as a
result of these preferences. Canada will continue to press for elimination of U.S. state and local level preferences.
Legislative and Regulatory Changes
Regulations in civilian and defence procurement, which can affect market access for Canadian suppliers, change
constantly. Canada continues to press the United States to clarify and resolve potential inconsistencies between
its NAFTA obligations and certain acquisition procedures that appear to limit Canadian participation. These include
simplified acquisition procedures for all procurement under US$100,000 and those used for commercial items to a value
of US$5 million. Recent legislation regarding procurement by the Department of Homeland Security broadens the use of
simplified acquisition procedures. Canada is also concerned about the propensity of U.S. legislators to incorporate
restrictive procurement provisions into legislation, such as appropriations acts, on an ad hoc basis. Often relating
to specific products, such action appears to be taken without full consideration of the potential for inconsistency
with international trade obligations.
Improving Access for Trade in Services
Financial Services
The Gramm–Leach–Bliley Act, passed in 1999, is the most important piece of financial services legislation enacted in
the United States in decades. The Act allows foreign financial institutions to become financial holding companies and to
engage in activities that they could not engage in before. With respect to the cross-border provision of services,
Canada continues to seek a level playing field in securities, and it continues bilateral discussions with the United
States on this. Further, as required under NAFTA, Canada, the United States and Mexico meet annually to address financial
services issues.
The U.S. government response to recent high-profile corporate failures was the Sarbanes–Oxley Act of 2002. It is
sweeping legislation designed to promote confidence in U.S. capital markets. The Canadian government has expressed its
concerns about certain provisions of Sarbanes–Oxley and is closely following the development of related rules by the U.S.
Securities and Exchange Commission.
Telecommunications
Some Canadian services providers have, in the past, encountered problems and lengthy delays in obtaining licences to
provide telecommunications services in the United States. Consequently, Canada will continue to carefully monitor U.S.
implementation of its WTO commitments with respect to telecommunications services to ensure that Canadian services
providers are subject to timely and transparent licensing procedures.
Shipping
A number of maritime laws (collectively known as the Jones Act) impose a variety of limitations on foreign
participation in the U.S. domestic maritime industry. Canada's particular concern relates to the "U.S. build"
requirement, which precludes the use of Canadian-built vessels in U.S. domestic marine activities. In addition,
several subsidies and other support measures are available to operators of U.S. vessels. These restrictions, coupled
with the defence-related prohibitions of the Byrnes–Tollefson Amendment (which precludes the acquisition and repair of
ship hull structures by non-U.S. entities), limit Canadian participation in U.S. shipping activities.
Canada will continue to use every appropriate opportunity to raise the issue of the U.S.-build requirement in
international forums dealing with maritime transportation.
Temporary Entry
Cross-border trade and the facilitation of temporary entry to the United States remain priority issues for trade in
services. Canada continues to discuss broader border management issues on an ongoing basis with Canadian services
providers and the United States, through a variety of bilateral mechanisms including the Shared Border Accord, Border
Vision and the Canada–U.S. Partnership.
In a Federal Register notice dated October 11, 2002, the U.S. Immigration and Naturalization Service announced its
proposal to implement final rules applicable to Section 343 of the U.S. Illegal Immigration Reform and Immigrant
Responsibility Act of 1996. These final rules would require any alien seeking U.S. employment as a health-care worker
to present a certificate from a U.S. credential-issuing organization verifying the person's professional competency
and proficiency in English. An interim rule is currently in place that affects only those health-care workers seeking
admission to the United States on a permanent basis. An indefinite waiver of inadmissibility for health-care workers
seeking temporary entry remains in effect pending final implementation of the regulations. Canada has provided comment
to the U.S. Immigration and Naturalization Service, indicating its concerns about the pending implementation of final
rules on Section 343 and its view that the duplicative certification requirements of Section 343 violate U.S.
obligations under NAFTA. Canada continues to pursue the issue.
Standards-Related Measures
Canada continues to engage in a constructive dialogue with the United States, principally in the NAFTA Committee on
Standards-related Measures, to urge that national regulatory burdens on industry be minimized while allowing industry
to self-regulate in the context of an increasingly integrated North American market.
The four NAFTA sectoral subcommittees (automotive, land transportation, telecommunications and textile labelling) also
provide excellent forums for trilateral cooperation in the area of standards and regulations. The land transportation and
textile labelling subcommittees are pursuing a work program intended to harmonize standards and facilitate trade; they
have achieved substantial progress in the area of driver/vehicle compliance for trucks and the care labelling of textile
goods, respectively. In the telecommunications and automotive sectors, where standards measures have been generally
complementary, the subcommittees are pursuing further bilateral cooperation, along with increased coordination of
activities in international forums.
Canada is seeking more complete implementation by the United States of its NAFTA and WTO sub-federal commitments, with
a view to upgrading or modernizing U.S. sub-federal standards measures to better accommodate the volume and variety of our
trade in manufactured goods. Canada is also working to enhance bilateral dialogue at the provincial and state level in
order to increase cooperative activities in the area of standards and regulations development.
Finally, Canada will continue to encourage cooperation with the United States in the development and use of voluntary
consensus standards for the North American market as a substitute for national regulatory requirements. These standards
initiatives will be joined by moves designed to provide appropriate conformity-assessment services.
Overview
Mexico, through its strategic trade liberalization policy initiated in the early 1990s, has now established a wide
network of agreements that provide preferential access to over 30 countries, including those of North America and the
European Union. According to the World Trade Organization, in 2001 Mexico was the 12th-largest exporter of merchandise
in the world and the largest exporter in Latin America.
Under the Fox Administration, Mexico is continuing its support for trade liberalization. It is playing a key role in
international developments: presiding over the APEC process in 2002, hosting the final leg of the FTAA negotiations in
Puebla beginning in the spring of 2003, and hosting the fifth WTO Ministerial Meeting in Cancun in September 2003. Mexico
has also entered into major new bilateral free trade negotiations with Japan, where agriculture will be at the centre of
discussions. According to Mexican officials, the agreement should be in force by January 2004.
A new feature of the Fox Administration's trade and investment development policy has been a focus on extending the
benefits of trade and investment liberalization to sectors that so far seem to have benefited less, in particular small
companies located away from the traditional Mexican business centres. This focus has been given new impetus by the
lobbying of domestic protectionist forces, which has intensified following the elimination of almost all customs duties
between Mexico and its NAFTA partners on January 1, 2003.
Implemented in 1994, NAFTA has spurred Mexican economic and trade development. In 2001, more than 88.5% of Mexico's
total merchandise exports went to the U.S. market. Canada– Mexico two-way trade soared from $5.6 billion in 1994
to $15.1 billion in 2002; in the same period, Canadian exports to Mexico more than doubled from $1.1 billion to $2.4
billion. Canada is Mexico's second-largest export market and trading partner.
In 2001, Mexico was the top destination for foreign direct investment in Latin America with US$24.7 billion. Mexican
investment in Canada remains low at $138 million in 2000. Canadian investment, however, has more than tripled since 1994,
reaching $4 billion in 2001. More than 50% of Canadian investment is in manufacturing.
Continued market expansion and increased penetration potential will keep export attention focused on priority sectors,
including energy equipment and services, agri-food, automotive and auto-related industries, environmental technologies,
safety and security, and information and communications technologies.
Market Access Results in 2002
- As scheduled under NAFTA, on January 1, 2003, all customs duties were eliminated on trade in originating goods between
Canada and Mexico, except for tariffs on beans and corn, which will be eliminated in 2008, and on sugar, dairy, poultry
and egg products, which were excluded from the agreement with Canada.
- Minister Pettigrew led a Canadian Trade Mission to Mexico City and Monterrey and met with Mexican government
counterparts on various bilateral trade issues.
Canada's Market Access Priorities for 2003
- Continue representations for a complete resumption of Canadian exports of seed potatoes to Mexico and monitor key
aspects of Mexican domestic policy that may have an impact on Canadian exports, such as the ongoing development of a
Mexican policy on genetically modified organisms and the implementation of Mexico's new agricultural support policy.
- Monitor the development of new Mexican mandatory regulations and their implementation, providing advice to Canadian
exporters and lobbying the Mexican government, when necessary, on behalf of Canadian export interests.
- Monitor customs-related developments at the U.S.–Mexico border that may impact on Canadian exporters and provide
timely assistance to Canadian companies with regard to exporting across this border. As well, monitor the implementation
of the opening of the U.S.–Mexico border to cross-border trucking services, providing assistance to Canadian services
providers and ensuring fairness for Canadian exporters.
- Work with Canadian professional associations to expand members' access to the Mexican market, in particular access
for engineers, actuaries and plant pathologists.
- Assist Canadian suppliers with respect to the application of NAFTA Chapter 10 by Mexican government agencies and
publicly owned companies, as well as monitor and lobby the Mexican government with respect to any identified systemic
problems with Mexican government procurement.
- Continuing engagement on the NAFTA Chapter 11 clarification initiative.
Improving Access for Trade in Goods
Seed Potatoes
In December 2000 and January 2001, Mexico imposed bans on imports of New Brunswick and P.E.I. potatoes for alleged
phytosanitary reasons. In late 2001, a Canada–Mexico technical working group was formed to make recommendations to
resolve the dispute. The technical working group has been unable to reach agreement on recommendations, and the two
sides are now referring the matter to a third-party reviewer. In January 2003, Mexico imposed a ban on the import of
Alberta potatoes, also for alleged phytosanitary reasons. Canadian officials are raising this issue at the technical
level with their Mexican counterparts.
Processed Food Certification
Canada and Mexico agreed at the September 2000 meeting of the WTO Committee on Sanitary and Phytosanitary Measures
to hold bilateral discussions on Mexico's certification requirements for processed food. The process was simplified
through the use of the manufacturers' certificate; however, the situation has once again become complicated. The
processed food certification issue is currently being managed at a technical level between Canada and Mexico.
Dry Beans
Under NAFTA, access for Canadian dry beans in the Mexican market is limited by a tariff rate quota (TRQ). Mexico
produces over 1 million tonnes of beans per year and imports some 125,000 additional tonnes, of which the U.S. supplies
approximately 90% and Canada supplies 3%. The overall quota will increase slightly each year until 2008, when beans
will have open access to Mexico. Beans may also be imported under the emergency quota, which is controlled by the
Mexican government and depends on the domestic production of beans. The majority of the emergency quota tends to be
allocated to the U.S. Canadian exporters are concerned with the current TRQ and the ratio of U.S. quota to Canadian
quota. The ability to fill the quota has been affected both by uncertainty associated with delays in quota allocation
and by the resulting short time frame for delivery of product to the market. Canada is pressing for increased
transparency and predictability in the Mexican auction system and also seeks to increase access for Canadian beans
under the emergency quota.
In late January 2003, Mexico arbitrarily suspended imports of dry beans from both Canada and the United States,
contrary to its NAFTA and WTO obligations. Canada has been making high-level representations objecting to the ban,
but the issue remains unresolved.
High Fructose Corn Syrup
On January 2, 2002, the Mexican government introduced a point-of-sale tax on soft drinks containing sweeteners other
than cane sugar. This tax effectively closed the door to exports to Mexico from Canada's primary high-fructose corn
syrup producer, because soft drink manufacturers in Mexico switched to cane sugar as their principal sweetener. On
March 4, 2002, President Fox announced a seven-month suspension of the tax to allow the government to put into place
its new National Sugar Policy. However, on July 12, 2002, the Mexican Supreme Court ruled that the delay was
unconstitutional. The tax was reinstated on July 17, 2002, and subsequently reconfirmed in the 2003 budget.
Canada has made several representations to Mexico outlining its concerns regarding the tax and will continue
to follow the issue closely and intervene as necessary.
Border Clearance
Many Canadian exporters are reluctant to enter the Mexican market because of Mexico's complex and evolving import
regulations for agri-food products. Canada currently employs a border clearance representative to assist with border
clearance of agriculture and agri-food products at the Nuevo Laredo–Laredo crossing. This border crossing is the
second-busiest border crossing in North America.
Mandatory Technical Regulations
Mexico maintains an elaborate system of mandatory technical regulations known as NOMs. Under the system, standards
development is coordinated by the trade and industry ministry, Economia. Each year, Economia issues a national
standardization plan that outlines areas where ministries intend to amend or add technical regulations and standards.
Canada will monitor the development of new Mexican mandatory regulations.
Regulation of Biotechnology
Mexico is establishing a legal framework for the regulation of biotechnology and products derived from it. The Mexican
government has set up an interdepartmental consultative mechanism (CIBIOGEM) on biosecurity and genetically modified
organisms, and several GMO-related regulations and laws are under development. One of these laws is an overall framework
law that will incorporate elements from existing regulations and form the basis for other biotech regulations.
Canada is concerned that the new regulations will impose an onerous approvals system for the development and marketing
of the products of biotechnology. Canada supports the need for an effective, science-based regulatory framework for the
products of biotechnology, and we are committed to working with Mexican officials to ensure the compatibility of Mexico's
biosafety regulatory framework with NAFTA and WTO provisions.
Improving Access for Trade in Services
Professional Services
Under NAFTA Chapter 12 (cross-border trade in services), the engineering professions of the three NAFTA parties signed
a mutual recognition agreement (MRA) in 1995 on the licensing and certification of engineers. However, this agreement
remains to be implemented. In the absence of consensus among U.S. engineering interests, the Canadian Council of
Professional Engineers and the Canadian provincial associations have decided to implement the MRA with Mexico and with
the State of Texas. Discussions on the technical details of implementation are expected to be completed in 2003.
Under NAFTA Chapter 16 (temporary entry for business persons), the addition of actuaries and plant pathologists to the
list of professions is in the process of being finalized.
Canada will continue to work with other interested Canadian professional associations to expand their access to the
Mexican market.
Other Issues
Government Procurement
The Canadian government will continue to assist Canadian exporters on a case-by-case basis with difficulties related
to procurement by Mexican government agencies and public companies. Procurement by Mexican entities listed in NAFTA
Chapter 10 is governed by the disciplines of this chapter; however, Mexico negotiated a blanket exemption for US$1
billion per year of government procurement (which increased to US$1.2 billion on January 1, 2003).
Mexico also negotiated set-asides from full NAFTA procurement coverage for the state oil (PEMEX) and electricity (CFE)
firms for a transitional period. As of January 1, 2003, PEMEX and CFE percentage set-asides have been eliminated; US$300
million per year applies.
Trade Data Reconciliation
The statistics produced by countries on their merchandise trade with the rest of the world frequently differ from
the statistics published by their trading partners. These differences reflect legitimate conceptual differences between
import and export statistics, as well as possible errors. The Merchandise Trade Reconciliation Canada–Mexico 2000–2001
report produced by Statistics Canada and the Mexican agency INEGI shows a discrepancy of over $4 billion between what
Statistics Canada reports as exports to Mexico, and what INEGI reports as imports from Canada. The major factor
contributing to this gap is transshipment or indirect trade through the United States. The implication is that Canada's
actual exports to Mexico may be greater than the reported figures.
Canada is one of the 34 democratic countries of the hemisphere engaged in negotiating the Free Trade Area of the
Americas. Launched in 1998 at the second Summit of the Americas in Santiago, the FTAA negotiations hold the potential
to create the world's largest free trade area, with more than 830 million people and a combined gross domestic product
of about $19.7 trillion. The FTAA will build on Canada's free trade ties with the United States, Mexico, Chile and Costa
Rica, and its expanding links elsewhere in the hemisphere, allowing Canada to take full advantage of emerging hemispheric
markets. The FTAA will coexist with pre-existing agreements such as NAFTA. This means that Canada's trade with the
United States and Mexico will continue to be governed by NAFTA. The FTAA would substitute for NAFTA in these relations
only if all three parties agreed. Even excluding Canada's NAFTA partners, the region is already a $3.8-billion export
market for Canada, and it is the destination for $67.4 billion in Canadian direct investment (representing 17.3% of
Canada's total direct investment abroad). The negotiations are to conclude by January 2005.
The origins of the FTAA initiative date back to the first Summit of the Americas, held in Miami in December 1994.
The summit process was established to strengthen cooperation among the community of nations in the Americas, with the
objective of promoting prosperity, democracy and development throughout the hemisphere. Detailed plans of action were
endorsed by leaders at the Miami, Santiago and Quebec City summits, addressing education, democracy and human rights,
economic integration and free trade, poverty and discrimination, and the environment. At the Quebec City Summit, it
was also agreed that the draft negotiating texts of the FTAA would be made public. The texts were released following
the April 2001 Ministerial Meeting in Buenos Aires, and again at the conclusion of the November 2002 Ministerial
Meeting in Quito.
The FTAA is the most visible element of the summit process, but its principal objectives (growth and development
through enhanced economic integration) are ultimately intended to reinforce the broader objectives of the process.
Canada continues to play a significant role in the broader summit process, having hosted the third Summit of the
Americas in Quebec City in April 2001.
Canada's leadership role as first chair of the FTAA negotiations was seen as a key opportunity to demonstrate our
commitment to strengthening ties within the hemisphere, as well as to further the trade liberalization agenda. By the
conclusion of Canada's chairmanship of the negotiations at the November 1999 Ministerial Conference in Toronto, concrete
progress had been realized and the groundwork laid for the next phase of the negotiations. The second phase of the
negotiations, chaired by Argentina, concluded with the Ministerial held in Buenos Aires in April 2001. Chairmanship
of the FTAA process was then transferred to Ecuador on May 1, 2001. Ecuador's chairmanship concluded on November 1,
2002, at the end of the seventh Ministerial Meeting in Quito. At this point, the United States and Brazil became
co-chairs of the FTAA process, and they will remain so until the end of the negotiations.
Canada is working closely with the Brazilian and U.S. co-chairs to advance the negotiations. Canada currently chairs
the Negotiating Group on Dispute Settlement and is vice-chair of the Negotiating Group on Subsidies, Anti-Dumping and
Countervailing Duties. Logistical support for the negotiations is provided by an Administrative Secretariat. It will be
relocated from Panama City, Panama, to Puebla, Mexico, as of March 2003.
FTAA Results in 2002
- Sectoral market access negotiations began on schedule in May 2002.
- Production (by negotiators, carrying out ministers' instructions) of a draft, square-bracketed text of the various
issue areas of the FTAA Agreement for ministerial review in Quito on November 1, 2002.
- Re-commitment by ministers to conclude negotiations by January 2005 and implement the agreement by no later than
December 2005.
- Agreement on and public release of the second draft negotiating texts of the FTAA Agreement.
- Provision of negotiating instructions and time lines for the negotiating groups for the final phase of negotiations.
- Approval of a conceptual framework for technical cooperation, called the Hemispheric Cooperation Program.
- Recognition, for the first time in the FTAA negotiations, of the external context of the FTAA, specifically labour
and the environment.
Canada's Objectives in 2003
- Advance agreement on an integrated draft text of the FTAA Agreement.
- Continue to make progress in the market access negotiations.
- Advance the development of an institutional structure for the FTAA.
- Seek support among our FTAA partners for specific reference to the Organization of American States (OAS) Democratic
Charter in the FTAA.
- Continue to enhance, through active engagement in the FTAA Committee on the Participation of Civil Society, the
participation of civil society in the FTAA process.
- Continue to ensure transparency in the FTAA process, through regular consultations with the provinces and by enabling
public access to information and documents on the Department of Foreign Affairs and International Trade Web site.
Overview
Argentina, Brazil, Paraguay and Uruguay established the Southern Cone Common Market (Mercosur) in 1991 through the
Treaty of Asuncion. Mercosur provides for the free circulation of goods, services, capital and labour; a common
external tariff; and harmonized macroeconomic and sectoral policies by 2006. With 215 million consumers (compared
with 400 million in NAFTA), this customs union was Canada's second-largest export market in South America in 2002.
That year, trade decreased with Argentina and Uruguay, as Canadian exports totalled $824 million compared with $1.1
billion in 2001. However, increased trade with Brazil and Paraguay offset this decline, and overall trade with Mercosur
remained unchanged relative to 2001 at $3.1 billion. Canada's main exports to Mercosur are paper products, potash, wheat,
telecommunications equipment and information technology, aircraft parts, petroleum products, machinery, malt, minerals,
plastics, rolling stock and pharmaceuticals. Canadian foreign direct investment is concentrated in the aluminum, oil and
gas, mining, power generation, telecommunications equipment and services sectors and has increased significantly in
recent years. In 2001, Canadian FDI was estimated at $11.1 billion for the Mercosur countries and an additional $5.6
billion for Chile, an associate member.
Brazilian exports to their Mercosur partners have decreased from US$9 billion in 1997 to US$6.4 billion in 2001.
Imports from other Mercosur countries to Brazil decreased by US$2.5 billion over the same period. Brazil's total
exports were US$58.2 billion in 2001, of which Mercosur represented only 11%. Mercosur represented 17% of Brazilian
imports (US$55.6 billion in 2001). Year-to-date figures for September 2002 reflect similar trends.
Partially harmonized common external tariffs were implemented in 1995, and already about 90% of all internal trade is
duty-free. With the worsening economic situation in Argentina, there has been considerable debate on how the Common
External Tariff should be maintained. The remaining exceptions to the Common External Tariff are to be eliminated by
2006. In 2000, after months of difficult negotiations, Brazil and Argentina concluded the process of reviewing the
Brazil–Argentine automotive agreement. The new agreement provides for the establishment of free trade in 2006. Until
then, the automotive trade will continue to be administered, following a "flex coefficient" by which Brazil and
Argentina are allowed to deviate from the strict exporting balance ratio. The flex coefficient for 2002 is 2.0, which
means that one country is allowed to export US$2 in vehicles from the other country for each US$1 in vehicles it imports.
In 2003, the coefficient will be 2.2, increasing to 2.4 in 2002 and to 2.6 in 2005; there will be free trade in 2006. As
trade in automobiles and auto parts comprises at least 30% of intra-Mercosur trade, this is an important agreement.
Mercosur and associated countries (Chile and Bolivia) have also recently reached an agreement regulating the free
movement of people and labour.
Mercosur is engaged in an expansive external trade agenda that includes negotiating closer ties with the Andean Pact,
the European Union (EU), Mexico, South Africa and the United States, on the one hand, and a dialogue with Canada, China,
the European Free Trade Association, Israel and Japan, on the other. Since its inception, Mercosur has negotiated and
entered into free trade agreements with Chile and Bolivia. Although Chile and Mercosur were to have deepened their
discussions with respect to Chile's full participation in the bloc, the timing is now unclear in view of Chile's
bilateral free trade negotiations with the United States. Further integration of Chile into the Mercosur trading bloc
is problematic, because Chile has a significantly lower import tariff structure: 9% on average compared with Mercosur's
14%.
Mercosur has also reached a framework agreement with the EU and is looking at 2005 for full implementation. Offers
have been made on both sides, and these are currently being reviewed. Market access for Mercosur agricultural products
remains a key condition for significant progress in these discussions. Mercosur countries have also engaged on free
trade talks with South Africa, with significant bilateral trade in automotive parts being a key area of convergence.
As well, in July 2002, Mercosur and Mexico concluded negotiations on the establishment of a framework automotive agreement,
which includes progressive tariff liberalization on autos and auto parts and is to be completed by July 2011. Mercosur
also intends to launch in the near future negotiations of a free trade agreement with Mexico, which would encompass the
already-concluded automotive agreement.
Mercosur is also devoting a lot of effort to concluding a free trade agreement with the Andean Community. However,
some pending issues such as treatment of sensitive products, rules of origin and the agricultural sector represent
significant challenges to be overcome. Furthermore, Mercosur is envisioning the launching of trade negotiations with
CARICOM and the Central American Common Market. In addition to all these sub-regional initiatives, Mercosur is fully
engaged in the FTAA negotiations, and so far has displayed significant cohesion during the negotiation process.
The most serious trade dispute between Mercosur members related to trade in chicken between Brazil and Argentina.
It was resolved when Argentina revoked regulations providing for anti-dumping penalties against imports of Brazilian
chicken and Brazil suspended a formal complaint it had launched against Argentina through the WTO's dispute settlement
process.
Despite widely publicized internal problems, Mercosur member countries consider Mercosur's political and economic
achievements to date to be substantial. In addition, Luís Inácio Lula da Silva, the newly elected President of Brazil,
has signalled his commitment to strengthening Mercosur. Nevertheless, various factors point to challenging days ahead.
These include the ongoing economic and political difficulties in Argentina; the sharp devaluation of the Brazilian real
and Brazil's elevated level of country risk; discontent in Paraguay and Uruguay over the level of Mercosur's Common
External Tariff; and the inability of Mercosur member countries to negotiate bilateral free trade agreements among
themselves.
Trade and Investment Cooperation Arrangement (TICA)
Signed in June 1998, the Canada–Mercosur Trade and Investment Cooperation Arrangement laid the foundation for enhanced
bilateral trade and investment and established a framework for collaboration in the FTAA, the WTO and the Cairns Group.
The first Consultative Group meeting called for under the TICA took place during the FTAA meeting in Toronto in November
1999. At that meeting, a proposal was made to form two committees: one to study customs and technical cooperation and a
second to study best practices in trade development and promotion.
In addition, it was agreed that the Business Advisory Council established by the TICA would provide the mechanism for
business representatives to provide input directly into the Canada–Mercosur trade and investment relationship.
Canada has held meetings with business representatives (in Calgary, Toronto and Montreal) to seek input on the most
beneficial activities that might be engaged in under the TICA. As a follow-up, the Canadian Council of the Americas
successfully organized a meeting of the Business Advisory Council in Buenos Aires, Argentina, on April 3, 2001, on the
margins of the FTAA.
On November 21, 2001, the TICA Consultative Group, consisting of senior trade officials, met in Montevideo, Uruguay,
to determine the next steps of a Canada–Mercosur action plan under the TICA. The group agreed on a work plan covering
issues related to trade development, agriculture (SPS and regulatory measures) connectivity and ways of strengthening
customs procedures. Although work exchanges have continued on connectivity, and preparatory work is being done on
customs cooperation, the next meeting has not yet been scheduled. With respect to agriculture, work is currently done
mainly at the bilateral level.
Overview
During 2002, Brazil's efforts to strengthen its economy were hampered to a large degree by regional economic problems.
The continuing Argentine economic and political crisis, its subsequent and continuing effects on Mercosur and Uruguay,
the global economic slowdown, the negative effects of terrorism on the airline market in general, and the uncertainty
over Brazilian elections combined to limit growth. As a result, GDP growth in 2002 was only 1.5% and forecast GDP growth
this year has been adjusted downward to between 1.5% and 2.0%.
The economy is recovering slowly following a 3.9% year-to-year drop in industrial activity over 2001, due primarily to
the energy crisis in that year. International Monetary Fund (IMF) targets for the primary surplus were met in 2001 and
should be achievable again in 2002. A new status report should be produced shortly. The IMF is optimistic about its
revised targets for 2003 and Brazil's ability to meet them. It is expected that Brazil will continue to be committed to
and will meet IMF obligations under the new PT (Workers Party) government. However, the sustainability of Brazil's public
debt has come under scrutiny in international markets as a result of the Brazilian real having lost more than 35% of its
value against the U.S. dollar since January 2002. (Most of that decline has occurred since May, in anticipation of the
election of a left-of-centre government in October.) In addition, lenders began demanding interest rate premiums and
shorter debt maturities. In contrast to earlier forecasts of price stability, it is now anticipated that inflation will
rise if the currency does not recover and interest rate pressures fail to ease. In response to the currency devaluation,
imports dropped sharply and exports began to rise starting in mid-year. As a consequence, a trade surplus in excess of $10
billion is expected this year. At the same time, however, business activity continues to be dampened by very high interest
rates.
Another impact of the political transition that started in October has been delays in investment as the international
business community awaits for the new government to signal its policy direction. Should the currency recover and interest
rates moderate, conditions should become more favourable for economic recovery, and concerns about Brazil's debt will
likely ease. Although the situation is improving, the signals from the new government during its first six months in
office and at its first IMF meeting in February will be critical. Although the real remains weak against the U.S. dollar
relative to 2001 levels, and interest rates are still very high, Brazil remains one of the most attractive long-term
markets for FDI, with inflows of US$23 billion in 2001 and an expected US$18–20 billion this year.
The weaker real, severe competition from Brazil's large and growing manufacturing sector, and active export activity
from the European Union, in concert with many import trade barriers, have combined to reduce Canadian export prospects
in the medium term. Canadian exports for 2001 declined 13% from the same period in 2000, and this trend is expected to
worsen in the near term. Despite reduced expectations for the performance of the Brazilian economy, however, longer-term
prospects for Canadian exporters continue to be strong.
Market Access Results in 2002
- Canada and Brazil signed and implemented an agreement covering mutual recognition of their poultry inspection systems,
thereby permitting trade between the countries in poultry products to begin in 2002.
Canada's Market Access Priorities for 2003
- Continue representations concerning the levying of duties and charges on imports that are not consistent with Brazil's
international trade obligations, such as Brazil's Merchant Marine Renewal Tax, which imposes a 25% tax on the ocean
freight of imported goods.
- Continue representations seeking changes to Brazil's newly implemented restrictions on the maximum levels of
quarantinable non-regulated pests on seed potatoes which Canada believes are trade restrictive and inconsistent
with international principles and practices.
- Continue monitoring how Brazil applies its customs valuation regime on Canadian imports to ensure that its
implementation is consistent with Brazil's international trade obligations.
- Monitor closely the implementation of Brazilian Instrucao Normativa (IN) 34, which requires pest assessments for all
plant products imported into Brazil, so as to ensure that Canada's historical trade is not disrupted due to plant risk
assessments.
Improving Access to Trade in Goods and Services
Merchant Marine Renewal Tax
Canada has raised concerns about the imposition of duties and charges on imports that are not notified in Brazil's WTO
schedule, such as the Merchant Marine Renewal Tax, with its potential trade-restricting and trade-distorting effect. The
amount of this tax is 25% of the ocean freight of imported goods. Since the tax does not apply to domestically produced
goods, or to goods imported over land from neighbouring countries, Canada considers that it violates both the national
treatment and most-favoured-nation obligations of the GATT. Also, in many cases where Brazil's applied tariff is within
the level of its WTO binding, the combination of the Merchant Marine Renewal Tax and the applied tariff exceeds the WTO
binding.
Customs Valuation
On February 13, 1998, Brazil published Decree No. 2.498/98, implementing the Customs Valuation Agreement of the World
Trade Organization. The agreement was further regulated by the adoption of two normative instructions (16/98 and 17/98)
issued by the Brazilian Revenue Department, which establish that all goods are subject to verification and that the
process is a selective one. The verification process takes into consideration the declared price of the merchandise,
the integrity of the documents presented, freight costs, costs related to loading and unloading the merchandise, and
costs of freight insurance. In addition, Brazilian authorities may request further documentation from the importer to
confirm the declared price of the merchandise.
In practice, 80% of goods enter Brazil under the automatic licensing system (SISCOMEX) introduced in 1997. The
remaining 20% of goods (normally goods subject to health and phytosanitary requirements) require approval and are
reviewed by the respective decision-making ministries. While Brazil has hailed SISCOMEX as a significant step forward
in streamlining customs procedures, many current and potential exporters find the system cumbersome and inflexible.
Canada will continue to monitor how Brazil applies its customs valuation regime on Canadian exports to ensure that
this is consistent with Brazil's international trade obligations.
Mutual Recognition of Poultry Inspection Systems
In 2002, the Canadian Food Inspection Agency and its Brazilian counterpart agreed on the sanitary conditions
under which bilateral trade in certain poultry products could begin. The agreement took effect on August 1, 2002.
Canadian exporters can now ship chicken meat to Brazil, and Brazilian exporters can ship broiler chicken meat to Canada.
Seed Potatoes
In 2001, Brazil notified the WTO Sanitary and Phytosanitary Committee that it had implemented new restrictions on the
maximum levels of quarantinable non-regulated pests on seed potatoes and had established maximum levels for physiological
defects. The measure took effect in November 2001.
Brazil's requirement to include quarantinable non-regulated pests among export certification criteria is inconsistent
with internationally agreed principles and practices. Canada has objected and will continue to press Brazil not to
implement those provisions of concern to Canada.
Plant Products Pest Risk Assessments
In 2002, Brazil published Instrução Normativa (IN) number 34, which requires pest risk assessments (PRAs)
for all plant products imported into Brazil. The IN took effect on November 27, 2002.
Canada sought, and received, assurances that Canadian historical trade would not be disrupted pending completion of
the PRAs. Canada has supplied the necessary technical data for the PRAs and will continue to monitor the situation closely.
Tariff on Wheat
In 1996, Brazil notified WTO members that it had withdrawn a market access concession of 750,000 tonnes of duty-free
imports of wheat from its WTO schedule and would begin applying a duty, currently set at 12.5%, to wheat imports. As
the largest non-preferential exporter of wheat to Brazil at that time, Canada notified its claim of
"principal supplying interest" in order to safeguard its right to compensation from Brazil for the non-implementation of this concession and
the raised tariff. Since that time, Canada and Brazil have held a series of consultations but have not yet agreed on a
settlement. Canadian exports of wheat to Brazil in 2001 were valued at $7.2 million, a decrease of 72% from the previous
year.
Regional Aircraft Dispute
Canada first expressed concerns about PROEX, a Brazilian export finance program, in 1996. Since 1998, the WTO Dispute
Settlement Body (DSB) has issued five rulings that PROEX subsidies for regional aircraft violated Brazil's WTO obligations
and had to be modified. In August 2000, following a breakdown in bilateral negotiations, Canada received authorization
from the WTO to retaliate against Brazil by imposing countermeasures of up to $344.2 million per year, or a total of
$2.1 billion. To date no retaliatory measures have been implemented given Canada's preference for a negotiated, long-term
solution to this issue.
In January 2001, Canada announced proposals to provide Canada Account financing to assist Bombardier in securing
regional jet sales to Air Wisconsin. The financing terms offered to Air Wisconsin matched terms proposed by Brazil on
behalf of the Brazilian regional jet manufacturer, Embraer. Responding to Canada's matching strategy, Brazil initiated
a challenge at the WTO, alleging that Canada Account financing of the Air Wisconsin transaction constituted a prohibited
export subsidy. The DSB issued its report in January 2002. Most importantly, the DSB found that Export Development
Canada's Canada and Corporate Account programs, as well as the Investissement Québec program, are compliant, in principle,
with Canada's WTO obligations. However, the financing of the Air Wisconsin transaction and of four smaller transactions
was found to be in contravention of WTO rules. In early 2003, Brazil received authorization from the WTO to retaliate
against Canada by imposing countermeasures of up to $385 million. At the same time, the Brazilian government has stated
that it does not intend to use the countermeasures awarded to it, preferring instead to work toward a mutually
satisfactory resolution to this dispute.
Canada has pursued negotiations as the most effective means of resolving the dispute and of maintaining a productive
bilateral relationship with Brazil. The key element of any final agreement, from Canada's perspective, remains the
establishment of a financing framework for regional aircraft that eliminates government-supported financing from an
airline's purchasing decision. In early 2002, negotiations resumed in earnest, with six meetings that year. Negotiators
on both sides agree that while a significant amount of work remains before an agreement is reached, the parties are slowly
converging on a common position.
Overview
The administration of former President Fernando de la Rua devised various policies to energize the flagging economy,
which has shrunk more than 10% since 1998. In particular, the government introduced competitiveness programs to provide
tax and financing incentives to exporters and specific economic sectors (such as transportation, construction and
agriculture). One of these measures involved the creation of an export peso (a hybrid of the U.S. dollar and the euro,
providing a subsidy to exporters). It also greatly altered the tariff structure originally shared with Brazil, Paraguay
and Uruguay (the Mercosur Common External Tariff) by raising tariffs on consumer goods to 35% and lowering those on
capital goods to zero. To stimulate consumption, the government also introduced a new bond (the "Lecop") to substitute
for various previously issued provincial bonds that are valued nominally at par with the peso. Due to severe budget
cuts at the provincial level, many provinces now pay both employees and contractors using these bonds.
Eduardo Duhalde was appointed President by the Legislative Assembly on January 1, 2002. On January 3, 2002, Argentina
formally defaulted on part of its US$141 billion debt when it missed a payment of US$28 million due on an Italian lira
bond; it also suspended payment on its debt. Argentina is expected to maintain the announced sovereign debt moratorium
on external financing obligations until a new agreement is reached with the IMF and international private creditors.
On January 6, both houses of Congress approved a "public emergency and currency reform law" delegating extraordinary
powers to the Duhalde Administration until December 10, 2003. The legislation ended the 10-year "convertibility" regime
of the one-on-one peso–dollar peg. The new legislation gave the President sweeping "emergency powers," including power
to devalue the peso. The Executive has the power to design and regulate any new currency regime(s).
A dual exchange rate regime has been adopted. For most financial transactions (e.g. import and export transactions),
the exchange rate is fixed at 1.4 pesos per U.S. dollar (an implied currency devaluation of 28.6%), while for other
transactions (e.g. those of tourists and ordinary Argentines) the peso will float freely. The government has indicated
that it wants to move to a single, floating exchange rate. The maintenance of the fixed exchange rate is seen as a
government attempt to manage a transition toward a comprehensive free-floating currency regime. The central bank is
authorized to buy and sell foreign currency with its own reserves in order to maintain the official rate, as well as
print pesos. The government still intends to tie the peso to a basket of currencies (e.g. the dollar, euro and real).
The key issue is not the devaluation rate, but rather the ability of the new currency regime to generate local
confidence, reverse capital flight and resume a trend of sustainable growth. However, the economic, political and
social situation remains very uncertain. The government did not pay a US$1-billion World Bank debt at maturity in
October and November 2002, waiting for an agreement with the IMF. Two federal–provincial agreements (February and
November 2002) were signed to comply with IMF demands, but the first one was never totally implemented and the second
needs approval by Congress and a series of measures to effectively implement it. The social situation is also of concern,
as 53% of Argentines are now considered poor and 21.5% of the labour force is unemployed.
After nearly a year of negotiations, Argentina and the IMF have reached an accord that will only last through August
31. The deal includes no fresh funds but will allow the rollover of some US$16.1 billion in debt due to the IMF,
Inter-American Development Bank (IDB) and the World Bank during that period. The accord is considered crucial to
preserving the country's growing international reserves and economic stability.
Bilateral Trade
Bilateral trade between Argentina and Canada increased markedly during the 1990s. From $173 million in 1989, two-way
trade grew to $641 million in 1997 before falling back to $602 million in 1998. Reflecting the economic recession in
Argentina in 1999, trade retracted to $515 million. In 2002, bilateral trade was $366 million, down 24% from 2001,
which follows a decline of 21% in 2000. Canadian exports shrank to $43.2 million, a 67% drop, while Canadian imports
fell to 322.8 million, down 7.8% from 2001.
In November 2001, Canada held bilateral political and economic consultations with Argentina in Buenos Aires,
the fifth such consultations since 1995. In December 2001, the Steering Committee of the Memorandum of Understanding
on Environmental Cooperation convened a two-day meeting in Buenos Aires attended by representatives from Industry
Canada, Environment Canada and Argentina's ministries of social development and environment.
Canada's Market Access Priorities for 2003
- Work with Argentine authorities to gain greater access to the Argentine market for Canadian pork products.
- Increase cooperation between Canada and Argentina on their common interests in the areas of nuclear energy,
geoscience, mining, fisheries, space, agriculture, environment, and information and communications technologies.
- The new banking measures have created additional trade hurdles. Some Canadian companies have reported difficulties
in acquiring or transferring funds related to trading activities.
Investment
Argentina is an important investment location for Canada. In 2001, Canadian direct investment in Argentina totalled
$5.6 billion; in 1990, Canadian investments in Argentina amounted to a mere $123 million. Canada remains one of the most
important foreign investors in Argentina. The main focus of this investment has been the oil and gas, mining and energy,
agro-industry, banking and telecommunications sectors. The forest sector may also offer potential for further Canadian
investment.
Government measures to try to alleviate the debt situation, which ended the peso–dollar peg, significantly altered
Argentina's economic environment and created a negative climate for private economic activities. GDP forecast for 2002
is -14% (based on pesos). Broken contracts, confiscation of bank deposits, bank sector inability to play its financial
intermediary role, and restrictions on stock exchange operations fuelled uncertainty and undermined investor confidence.
Lack of judicial security is now one of the main concerns of private economic agents.
Generally, Argentina presents an open market to foreign investors, who are free to enter the country through mergers,
acquisitions, greenfield investments or joint ventures. However, in 2002, the central bank did not allow a single dividend
payment transfer outside Argentina, and several privatized companies complained about violation of the escalation clause.
Several clauses of bilateral investment treaties, in particular those related to free capital movement, were not applied.
Thus some 40 foreign investors, including public utility companies that bought state corporations, expressed their
intention to initiate international legal proceedings if their cases are not settled. Six cases out of 41 before the
International Centre for Settlement of Investment Disputes are related to Argentina.
The Canada–Chile Free Trade Agreement has been the cornerstone of bilateral trade relations between Canada and Chile
since its entry into force in July 1997. The CCFTA is complemented by separate agreements on labour and environmental
cooperation, also in effect since 1997, and by a double taxation treaty that entered into force in 2000.
Over the first five years of the CCFTA, bilateral trade increased and Canadian investment grew sharply. Bilateral
trade declined slightly in 2002 to $948 million. Since implementation of the CCFTA, Canada has been increasing its market
share in the Chilean market, gaining at the expense of competitors such as the United States, the EU and Japan. With the
notable exception of agriculture and sanitary issues, there have been few bilateral market access irritants.
Canada has become the second-largest investor in Chile, with close to US$12 billion in authorized investments, a 61%
increase since 1997. This is the largest destination for Canadian direct investment abroad in Latin America, and our
eighth-largest destination in the world. Canadian investment in Chile is led by the mining sector, with many large
investments either in place or being planned for the near future. At the same time, Canadian investment has expanded
into a variety of other sectors, such as financial services, energy, forestry, telecommunications, manufacturing and
infrastructure. Some of these investments (e.g. large copper and gold mines, a major bank, an electricity transmission
network, the world's largest methanol plant, a proposed aluminum smelter) have gained a high profile in Chile.
The CCFTA goal of lowering costs for producers and lowering prices for consumers has been achieved. As of January 1,
2003, virtually all bilateral trade is tariff-free. There is, however, much work to be done, and Canada's priority is to
complete the implementation of the CCFTA and, through the CCFTA committees and working groups, discuss possibilities for
further liberalization.
Economically, Chile is one of the most stable and open countries in Latin America. It has weathered the regional
economic crisis well, with GDP growth of 3% in 2001 and estimated 1.9% in 2002. The instability in the region of the
last year has dampened growth prospects but not Chile's stability, given its solid fundamentals. In seeking further
free trade agreements, Chile is continuing to open markets for its own products, creating increased prosperity. This
should in turn bring greater opportunities for Canadian exporters interested in the Chilean market, as well as new
possibilities for Canadian investors in Chile.
Market Access Results in 2002
- Canada and Chile agreed on notes of interpretation of certain provisions of the CCFTA investment chapter. Through
these notes, the two parties to the CCFTA commit to make the investor–state dispute settlement process more open and
transparent. Canada and Chile also clarified the interpretation of the provision governing the minimum standard of
treatment to be accorded to foreign investors.
- The two countries established the bilateral Committee on Sanitary and Phytosanitary Measures and instructed officials
to report on progress to ministers at the next meeting of the CCFTA Commission in 2003. This committee will provide a
regular forum for consultations and technical cooperation, including discussions on bilateral issues with a view to
avoiding disputes.
- In addition to results achieved under the CCFTA, a direct air link between Canada and Chile was established, with
flights operating regularly between the two countries.
Canada's Market Access Priorities for 2003
- Pursuant to the memorandum of understanding (MOU) signed in 2001, by the Chilean College of Engineers and the Canadian
Council of Professional Engineers, encourage these engineering organizations to continue working together to complete
discussions and implement measures in keeping with the MOU.
- Promote efforts by other professional organizations to work toward similar agreements.
- Hold a first meeting of the CCFTA Sanitary and Phytosanitary Committee and begin work on a longer-term structure
for managing these sensitive issues.
- Monitor and analyse the agreements signed by Chile with other countries, such as the United States and the
European countries, to ensure that Canadian interests are not adversely affected and that ongoing Canada–Chile
discussions related to furthering the CCFTA take into account the commitments made in these other agreements.
- Work with Chilean authorities to gain access to the Chilean market for Canadian beef products.
- Press for negotiation of a government procurement agreement to broaden the CCFTA.
- Seek a satisfactory resolution to a customs valuation issue that has affected a Canadian automotive maker.
In August 2002, Canada and the Andean countries (Bolivia, Colombia, Ecuador, Peru and Venezuela) announced that
they had agreed to begin exploratory discussions toward a possible free trade agreement. Initial talks were held
later that month. In November 2002, the Canadian government launched extensive public consultations with Canadians
to seek views on priorities, objectives and concerns and to help define the possible scope of this initiative.
Further exploratory discussions with the five countries of the Andean Community will be necessary before Canada
will be in a position to commence negotiations.
Overview
Venezuela is an important commercial partner and Canada's second-largest trading partner in South America. Bilateral
trade in 2002 totalled almost $1.8 billion, with Canadian exports valued at $552 million and imports at $1.2 billion.
The main Canadian exports to Venezuela are motor vehicle parts and accessories, telecommunications equipment, wheat,
newsprint, wood pulp, potatoes, oilfield equipment, computers and components, beans and lentils, malt, motor vehicles
and papers. Canada's imports from Venezuela consist of petroleum products, bitumen and asphalt, semi-finished iron for
motor vehicle parts, iron and steel products, chemicals, rubber and plastics.
There is significant Canadian investment in Venezuela's telecommunications, banking, mining, and oil and gas sectors.
In addition, Canadian exporters and investors are pursuing opportunities in the agri-food, environment and security
products sectors.
The Foreign Investment Protection Agreement between Canada and Venezuela was signed in 1997 and came into force in
January 1998. As a member of the Andean Community, Venezuela signed the Canada–Andean Community Trade and Investment
Cooperation Arrangement in May 1999.
Canada's Market Access Priorities in 2003
- Continue to lobby for final sign-off on the Double Taxation Agreement so that it can come into force.
- Continue making representations to Venezuela seeking elimination of its
discretionary import licensing system for agricultural products.
- Carry on encouraging Venezuela to resolve investment dispute(s) in accordance with the principles of
transparency, good faith and due process of law.
Improving Access for Trade in Goods and Services
Venezuela's commitment to an open and rules-based trading system is increasingly in question. During the past few
years, Canada has made numerous representations to Venezuelan authorities raising concerns about Venezuela's import
licensing systems and practices that restrict agricultural products. Canada's specific concerns have been with respect
to meat, seed potatoes, table potatoes, onions and most recently pulses. Some Canadian exporters have complained that
according to importers, import licences are either: a) not granted on a timely basis; b) granted but not for the full
amount of the request; or c) not granted at all. No legitimate reasons are provided for denying or delaying the licences.
Canada's position is that as long as Venezuela's legitimate SPS concerns have been addressed, any SPS-related licences
should be granted on a timely and automatic basis. Canada has on many occasions requested full details (in writing) of
Venezuela's import licence administration but has never received this information. On November 26, the U.S. held formal
WTO dispute settlement consultations with Venezuela. Canada participated in these consultations.
In August 2002, Canada and the Andean Community countries announced that they would begin preliminary talks toward
a possible free trade agreement. An agreement with these countries has the potential to yield broad economic benefits
for Canada in the areas of market access for goods and services and investment.
Other Issues
Venezuela's attractiveness as a foreign investment destination has been called into question by its recent political
and economic difficulties. Las Cristinas is a major gold mining project in Venezuela that has been the subject of
longstanding and complex legal disputes involving, among others, the Venezuelan government and several Canadian
companies. A range of litigation is under way in Venezuela in an attempt to resolve the attendant commercial disputes.
The Canadian government has underlined to Venezuelan authorities the importance of resolving the disputes in accordance
with the principles of transparency, good faith and due process of law.
In February, Venezuela imposed a foreign exchange control regime, which will affect all exporters of goods and services
to Venezuela. However, the duration of the regime is unclear and its full operational details were beginning to emerge
at the time of publication.
Overview
The Central American countries—Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama—are emerging
economies with generally good economic growth. Canadian exports to Central America reached $301 million in 2002.
Canadian exports face import barriers in traditional sectors, particularly agricultural products such as pork in Panama.
On November 1, 2002, the Canada–Costa Rica Free Trade Agreement and two cooperation agreements on labour and the
environment came into force. Free trade negotiations with El Salvador, Guatemala, Honduras and Nicaragua as a group
(the Central America Four, or CA4) are currently under way.
The 15-member Caribbean Community (CARICOM) is a welcoming market for Canadians, with few barriers to trade, English as
a common language, legal codes and business practices that are similar to those in Canada, and well-established Canadian
banks in the region. Canada and CARICOM held preliminary discussions toward a free trade agreement in 2002.
In March 2002, the President of the Dominican Republic (not a member of CARICOM) and the Canadian Prime Minister agreed
to consider bilateral free trade negotiations and decided that the two countries would initiate exploratory discussions
on enhancing our trade relationship.
The conclusion of free trade agreements with the countries of Central America and the Caribbean will enhance Canada's
presence and influence in the region and help realize the potential for further developing the trade relationship
between our countries, particularly with regard to small and medium-sized businesses.
Market Access Results in 2002
- Entry into force of the Canada–Costa Rica Free Trade Agreement.
- Progress in FTA negotiations with El Salvador, Guatemala, Honduras and Nicaragua.
- Continued discussions with CARICOM on a framework for FTA negotiations.
- Preliminary discussions with the Dominican Republic on a framework for FTA negotiations.
- Memorandum of understanding on phytosanitary requirements for
exports of Canadian seed potatoes and forestry products to the Dominican Republic.
- Removal of restrictive import permit requirements for Canadian pork to Panama.
Canada's Market Access Priorities for 2003
- Conclude FTA negotiations with El Salvador, Guatemala, Honduras and Nicaragua.
- Continue exploratory discussions with CARICOM in preparation for FTA negotiations.
- Continue exploratory discussions with the Dominican Republic in preparation for FTA negotiations.
- Continue to press Panama for the removal of trade barriers, including meat plant approvals, adversely affecting
Canadian exports of agri-food products.
On November 1, 2002, the Canada–Costa Rica Free Trade Agreement (CCRFTA), as well as the cooperation agreements on
labour and the environment, came into effect. The CCRFTA demonstrates that it is possible to take into account
differences in the levels of development and size of the free trade partners. In market access, for example, the
CCRFTA is asymmetric. Costa Rica will eliminate tariffs immediately on some 67% of its tariff lines, including some
key Canadian export interests such as automotive and environment-related goods, newsprint, prefabricated buildings
and some construction products. Tariffs on the remaining goods will be eliminated over a period of up to 14 years.
Canada will provide immediate duty-free access for some 86% of its tariff lines, with tariffs on the remaining goods
being phased out over a period of up to eight years.
One of the main accomplishments of this FTA is the establishment of a precedent-setting framework for competition
policy, which could serve as a model for the region. Additionally, the CCRFTA includes a comprehensive chapter on trade
facilitation that helps make trade procedures more efficient and reduces formalities and costs for Canadian businesses
at the border. The agreement also lays the foundation for future cooperation between the two customs administrations to
enable sharing of experience and expertise and to ensure that the agreed-on customs procedures are implemented
appropriately and remain effective.
The side agreements on labour and environmental cooperation contribute to the improvement and enforcement of standards
in these areas. The Canada–Costa Rica Agreement on Environmental Cooperation also provides for technical cooperation to
strengthen environmental management systems and expand the participation of the public in environmental policy making.
The Canada–Costa Rica Agreement on Labour Cooperation establishes a work program and a process designed to enable the
public to raise concerns about the effective application of labour law in the other country.
On November 21, 2001, International Trade Minister Pierre Pettigrew announced the launch of free trade negotiations
with El Salvador, Guatemala, Honduras and Nicaragua, following an agreement by leaders at the Canada–Central America
Summit in September 2000. After extensive consultations with Canadians, the negotiations are well under way and could
conclude by the summer of 2003.
In 2002, Canadian exports to the CA-4 totalled $188 million, while imports stood at $372 million (total for all four
countries). In the negotiations, Canada is seeking to secure preferential access for Canadian goods and services to the
CA-4 markets and the elimination of tariffs on key Canadian exports such as telecommunications goods and services,
environmental equipment and services, value-added processed foods, automotive parts, and construction equipment and
services. Canada is also seeking a chapter on investment and financial services. Parallel cooperation agreements to
address labour and environmental issues are also being pursued.
With a GDP of US$10 billion, the second-highest per capita income and the most stable consumer prices in the region,
Panama still leads its Central American neighbours as a potential market for Canadian goods and services. Panama's key
location and excellent infrastructure are two of the many advantages to doing business with this country and, through
it, with its neighbours in Latin America and the Caribbean.The construction sector, previously identified as a major
source of opportunities for Canadian companies, showed negative results in 2002. Contributing factors were the Panamanian
government's decision to postpone indefinitely the construction of a light rail system for Panama City, a project valued
at US$200 million; the postponement of the construction of a new potable water plant, valued at US$50 million, until the
first quarter of 2003; and continuous delays in the construction of a second bridge, with access highways, over the
Panama Canal, a project worth some US$100 million.
The construction sector, previously identified as a major source of opportunities for Canadian companies, showed
negative results in 2002. Contributing factors were the Panamanian government's decision to postpone indefinitely the
construction of a light rail system for Panama City, a project valued at US$200 million; the postponement of the
construction of a new potable water plant, valued at US$50 million, until the first quarter of 2003; and continuous
delays in the construction of a second bridge, with access highways, over the Panama Canal, a project worth some US$100
million.
Non-tariff import barriers continue to affect Canadian agri-food exports to Panama, though to a lesser extent. The
issuance of import permits for pork has been resolved, and these are being released on a timely basis, allowing the
import of Canadian pork into the market. However, individual inspection of plants wishing to export to Panama continues
to be a matter of concern. Although most exporting plants have passed inspection by Panamanian authorities, Canada needs
to continue pressing the Panamanian government for an overall approval of the Canadian system.
The 15 members of CARICOM are Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti,
Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Montserrat
(U.K. dependency). The Bahamas is a member of CARICOM but not of the Caribbean Common Market.
Annual two-way merchandise trade between Canada and the CARICOM countries amounted to $954 million in 2002, with
Canadian exports totalling $473 million and imports $481 million. (These statistics do not include goods transshipped
through the United States.) More than $200 million in contracts for Canadian consulting, engineering and contracting
services are awarded annually.
Canadian investment in CARICOM countries as a group exceeds $25 billion and is mainly in financial services (banking,
insurance), particularly in Barbados and the Bahamas. Canadian investment diversified in the 1990s to include Trinidad
and Tobago's energy sector and Guyana and Suriname's mining sectors.
At the Canada–CARICOM Summit in Jamaica on January 19, 2001, Prime Minister Chrétien and the heads of government of
the Caribbean Community and Common Market countries agreed to initiate discussions toward bilateral free trade.
Extensive consultations with Canadians were carried out at the beginning of 2002, and representatives from Canada
and CARICOM held a second preliminary meeting in September 2002 to share views on the scope and modalities of
negotiations leading to an FTA.
The Dominican Republic is one of the Caribbean's largest and fastest-growing markets and duty-free manufacturing zones.
Official statistics put two-way trade between Canada and the Dominican Republic at a modest $245 million in 2002, but
these statistics do not reflect the large portion of bilateral trade transshipped through the United States. Canadian
investment is substantial, mainly in telecommunications, mining, banking and tourism.
Following consultations between the Canadian Food Inspection Agency and the Ministry of Agriculture of the Dominican
Republic, the phytosanitary conditions under which Canadian seed potatoes and lumber may be imported have now been
clarified. Access to the Dominican market will be provided to products from all regions of Canada regardless of the
areas of production and ports of loading in Canada. These agreements were formalized with the signing of a memorandum
of understanding in December 2002.
In March 2002, the President of the Dominican Republic and Prime Minister Chrétien agreed to consider bilateral free
trade negotiations and decided that the two countries would initiate exploratory discussions on enhancing their trade
relationship. Extensive public consultations were launched in November 2002 to obtain the views, objectives and priorities
of Canadians. To help define the scope of negotiations toward an FTA, officials from both countries have met twice for
exploratory discussions.
Cuba is Canada's largest export market in the Caribbean and its fifth-largest in Latin America, with $259 million in
exports in 2002. In addition, Canada is one of Cuba's largest trading partners and its second-largest source of foreign
investment.
Cuba is an emerging market with significant potential for Canadian exporters and investors. However, it still suffers
from inefficiencies caused by central planning, outdated technology and poorly motivated workers. Labour regulations are
unique given Cuba's socialist outlook. To hire a Cuban worker, foreigners must pay a Cuban state employment agency in U.S.
dollars. This agency in turn pays the Cuban employee a small percentage of the total in Cuban pesos. Further, the
attractiveness of opportunities is mitigated by the continuing embargo of Cuba by the United States, including legislation
that attempts to impose American laws on companies in other countries. Canada has enacted amendments to the Foreign
Extraterritorial Measures Act, which counteract these laws by enabling "clawback" of any losses in U.S. courts that is
enforceable against American assets in Canada. The Canadian government is opposed to the extraterritorial application of
laws and does not support the U.S. embargo on Cuba.
While Cuba has been suffering under the U.S. embargo for over 40 years, it has purchased over US$189 million of
agricultural commodities from the United States in 2000. These purchases were made in cash as per the U.S. Trade
Sanctions Reform and Export Enhancement Act of 2000 (TSRA), which effectively removed agricultural commodities from the
U.S. embargo on Cuba providing the purchases were made in cash. These cash terms, offered only to U.S. exporters, have
created an uneven playing field for others in the market while further reducing Cuba's liquidity and its corresponding
capacity to import. Cuba's liquidity has also been affected severely by a combination of events including September 11
and its effect on tourism, the low price of its export commodities, the high price of imported oil, and the devastation
caused by hurricanes Michelle, Isidore and Lili.
There is concern about economic stability surrounding the inevitable succession of a new leadership and the eventual
end of the American embargo. Canadian investors must balance the advantages of early entry into a dynamic market against
the risks of abrupt changes in business conditions.
In 2001 and at the start of 2002, Canadian exporters encountered problems with the interpretation of Canada–Cuba
sanitary and phytosanitary agreements. Canadian and Cuban authorities worked together to resolve these differences.
At the end of 2001, Cuba amended rules regulating the opening of offices by foreign entities, an amendment that appears
to discourage smaller companies. Requirements for opening a representative office include having a prior volume of
business with Cuba of US$500,000 annually for three years and providing audited accounts. This legislation, of course,
does not affect selling direct from Canada.
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