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Opening Doors to the World
Canada's International Market Access Priorities 2003
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Opening Doors to Europe
Overview
The European Union is the world's largest single market, having surpassed the United States in population and exports
and rivalling it in gross domestic product. Its population was 377 million on January 1, 2001, and its share of the world's
aggregate GDP in 2001 was 32.5%, compared with 25.2% for the United States and 2.2% for Canada.
As a group, the 15 EU member states continue to rank as Canada's most important trading partner after the United States
and are the largest source and destination of foreign direct investment in Canada after the U.S. Total Canadian merchandise
exports to the EU amounted to $17 billion in 2002, and accounted for 4.3% of Canada's global exports and 34% of Canada's
non-U.S. exports. The growth rate in Canadian exports to the EU since 1991 is 3%, compared with 2.9% for the rest of the
non-U.S. world. While the United States absorbed 94% of the growth in Canada's global exports from 1991 to 2001, the EU
accounted for 44% of growth in non-U.S. exports.
Canadian imports from the EU grew at more than double the rate of Canadian exports to the EU between 1991 and 2002,
climbing at about 10% per annum. Imports from the EU reached $39 billion in 2002. As a result, Canada faces an
ever-widening deficit in its balance of trade with the EU, which stood at $22 billion in 2002.
The stock of Canadian foreign direct investment in the EU has grown substantially during the past decade to the point
where, since 1996, it has been approximately equal to EU direct investment in Canada. The aggregate value of Canadian FDI
in the EU stood at $76.5 billion in 2001 and was 19.6.% of all Canadian direct investment.
Several major trade and economic developments in the EU have implications for Canada, including the continuing process
of advancing economic and monetary union, market distortions in the agriculture sector arising from domestic support and
export subsidies, protective tariffs in certain sectors, the further development of harmonizing regulations for the single
market, the pending enlargement of the EU, new bilateral free trade agreements, and bans and restrictions on imports
imposed by the EU for health, environmental and consumer protection reasons. However, according to a survey of 800
Canadian exporters in early 2002, 52% of active goods exporters and 83% of services exporters consider their trade with
the EU to be problem-free.
Canada–EU trade relations are covered by World Trade Organization agreements and bilateral agreements on cooperation in
customs, competition policy, science and technology, trapping standards, veterinary inspections and mutual recognition of
certification and testing of products for standards purposes.
The euro is the official currency of 12 of the 15 EU member states, with only Denmark, Sweden and the United Kingdom
retaining their own currencies. The Swedes will hold a referendum on euro membership on September 14, 2003. Although the
economic and monetary union was launched on January 1, 1999, euro notes and coins only began circulation on January 1,
2002. The change in currency had no negative impact on Canadian economic interests.
Regarding enlargement of the European Union, accession negotiations for the first wave of 10 candidate countries were
concluded at the European Council meeting in Copenhagen, held December 12 to 13, 2002. This group consisted of Cyprus,
the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia. The accession
treaty is to be signed at the Athens summit on April 16, 2003. Bulgaria and Romania are also negotiating with the EU,
but these two countries are not expected to join until 2007 at the earliest. Turkey has not yet entered into accession
negotiations because it does not meet the political, economic and "acquis communautaire" criteria for EU membership.
The EU is also negotiating regional free trade agreements with other parts of the world, including with the Mercosur
countries and Chile, and in recent years agreements have been reached with Mexico and South Africa. Some 70 developing
countries that are signatories to the Lomé Convention already enjoy preferential access to the European Union. The EU
eventually intends to convert these arrangements to free trade agreements. Economic ties with Switzerland, with which it
has a free trade agreement, have also been deepened through a series of bilateral agreements. Canada is one of only eight
economies worldwide that does not have some form of preferential trading relationship with the European Union.
Canada–EU Trade Relations
A number of bilateral instruments are in place to help manage Canada–EU trade relations. The 1976 Framework
Agreement for Commercial and Economic Cooperation established the Joint Cooperation Committee, which meets
annually at the senior officials' level. The 1996 Joint Political Declaration on Canada–EU Relations and the
Canada–EU Action Plan set goals for
broadening
Canada–EU relations, not only in the trade and economic areas, but also on a broad range of foreign and domestic
policy issues as well. Most recently, at the Canada–EU Summit held in Ottawa on December 19, 2002, leaders called
for the development of a "Canada–EU Trade and Investment Enhancement Agreement," covering, among other things, new
generation issues and outstanding barriers to trade. Leaders also agreed to intensify the regulatory dialogue and
to work toward a new bilateral framework in this field.
The EU–Canada Trade Initiative (ECTI),
launched in December 1998, established a subset of objectives for market access and economic cooperation
drawn from the action plan, which were considered achievable within a reasonable time frame. These objectives
include those on regulatory cooperation, services, government procurement, intellectual property, competition
issues, cultural cooperation, business-to-business contacts, and electronic commerce. ECTI also calls for regular
consultations between both parties on multilateral trade issues.
A report on progress made under ECTI is submitted to trade ministers at each biannual Canada–EU Summit. The report
also sets priorities for the coming period. Under ECTI, implementation of a mutual recognition agreement on conformity
assessment bodies remains a priority. The EU removed regulatory barriers to the import of Canadian ice wine in May 2001,
and progress has been made toward agreements on wine and spirits through negotiations that continued through 2002. The
establishment of a dialogue between the respective business communities has been a key ECTI objective. The Canada–Europe
Round Table (CERT), established in 1999, brings together firms from a range of sectors that support the development of the
Canada–EU economic relationship. Conferences on competition policy and business competitiveness were organized by CERT
during the past year.
As stated above, a major survey of Canadian business attitudes toward the transatlantic marketplace was completed in
2002. Carried out by Ipsos-Reid under the aegis of ECTI, the survey of Canadian exporters identified various business
priorities for reducing trade barriers including bilateral free trade and increased regulatory cooperation in the broad
area of product certification.
The Minister for International Trade and his counterpart, the EU Commissioner for Trade, meet frequently to discuss
the bilateral and multilateral trade agenda. Canada–EU trade issues are also addressed by officials through the Joint
Cooperation Committee and the Trade and Investment Sub-Committee as well as in other sectoral working groups.
Market Access Results in 2002
- Completion of a survey on the attitudes of Canadian business toward the European marketplace.
- Adoption of a decision by the European Commission in January 2002 recognizing the Canadian Personal Information
Protection and Electronic Documents Act as providing for an adequate level of protection as required by Directive 95/46
for the transfer of personal data from the EU.
- Exchange of questionnaires between the Canadian and European architectural associations.
- Exchange of questionnaires between the Canadian and European engineering associations.
- Removal of regulatory barriers for bovine embryos and lamb-based pet food.
- Renewal of the three-year derogation for the export of seed potatoes from Prince Edward Island and New Brunswick.
- Successful conclusion of GATT Article XXVIII negotiations between Canada and the EU, which will maintain Canada's
traditional access to EU markets for high-quality wheat and durum. Annual Canadian wheat exports to the EU have averaged
over $500 million per year during the past five years.
Canada's Market Access Priorities for 2003
- Continue negotiations of agreements that will improve market access for Canadian wine and spirits.
- Continue to press the EU for improved market access for cooked and peeled shrimp, including relaxation of the
requirement for further processing.
- Secure recognition of Canada's Bovine Spongiform Encephalopathy (BSE)-free status under the EU's risk management
system.
- Continue to advance equivalency in commodities covered under the Canada–EC Veterinary Agreement, particularly with
respect to pork.
- Seek an extension of the seed potato derogation to all potato-producing areas of Canada.
- Seek EU approval of a paperless certification system for kiln-dried, heat-treated lumber from Canada.
- Continue with the confidence-building phase to enable implementation of the 1998 Canada–EU mutual recognition
agreement.
- Develop proposals for the design of a Canada–EU Trade and Investment Enhancement Agreement to be tabled at the
Canada–EU Summit in December 2003.
- Intensify our regulatory cooperation with the EU with a view to establishing a new bilateral framework that reduces
the regulatory burden faced by our exporters.
A number of barriers to trade exist in the EU that are of concern to Canada, particularly in the agriculture and
natural resources sectors. In the wake of food-safety crises in the European Union, the European Commission and member
state positions on consumer health and safety issues have grown more cautious, and factors other than scientific
considerations appear to be growing in influence. Many of the actions proposed in the EU's 2000 White Paper on Food
Safety were initiated in 2002, and several updated regulations related to food safety and animal health were implemented.
The Canadian government continues to work with industry stakeholders to assess the impact and scientific basis of such
legislation. Another development in 2002 was the creation of the European Food Safety Authority. The agency is to provide
independent scientific advice—primarily to the European Commission but not exclusively so—and will assess risks related to
the food chain.
Improving Access for Trade in Goods
Common Agricultural Policy Reform and Implications of European Council Budget Decisions
The European Council meeting of October 24 and 25, 2002, produced agreement on a fiscal framework that limits budget
growth of the market-related initiatives and direct payments under the Common Agricultural Policy (CAP). Agricultural
funding accounts for more than 40% of the EU's total budget, and a crucial element of the deal was approval of a
Franco–German compromise over spending and CAP reform. Direct payments and commodity support regimes, which account for
90% of the CAP budget, will continue to be funded as agreed under the Berlin Summit (Agenda 2000) until 2006 and will be
fixed at that level, plus 1% per annum for inflation, until 2013. EU enlargement will proceed under this framework, which
proposes a phase-in of direct aids for agriculture in the 10 new countries beginning at 25% in 2004. Aid will increase by
an additional 5% for the next three years and then by an additional 10% per year until payments are equal throughout the
enlarged EU.
The effect of the European Council decisions have been interpreted differently by certain member states and the
Commission. Some believe that changes to the CAP are unnecessary (France), others say changes are not precluded (U.K.),
and the Commission notes the absence of wording related to CAP reform. The Council decisions make it clear that all CAP
reforms, including for sectors not currently under review, must be financed from this fixed budget and that the spending
limitations are without prejudice either to CAP reform or to the WTO Doha Round of trade negotiations. Canada will
continue to follow the discussions on CAP reform, and the recent budget decision related to it, with great interest.
Wine and Spirits
Continued dialogue between Canada and the EU on issues related to trade in wine and spirits, including between leaders
and ministers, has resulted in significant developments in recent years. The EU demonstrated its willingness to resolve
outstanding differences by adopting regulatory changes, effective May 17, 2001, to allow access for and marketing of
Canadian ice wine in the EU market. As a result, Canada agreed to commence bilateral negotiations in November 2001.
Discussions to date have covered all issues of interest to both sides; officials indicate that a mutually beneficial
agreement could be signed in 2003, which will provide stability and equity in the trade of wine and spirits between
Canada and the EU.
Fish and Seafood
Canadian fish and seafood exports to the EU have declined over the past decade, stabilizing at about the $300-million
level. In 1990, seafood exports to the EU represented about 20% of Canada's global fish and seafood exports; the 2001
figure was 8%. Major factors have been the reduced supplies of groundfish, high EU tariffs and the privileged access
that Canada's major competitors have to the EU market. The EU tariffs on many fish and seafood items of interest to
Canada fall within the range of 12% to 23%.
Coldwater shrimp exports face tariff rates of up to 20%, depending on the product form. Primarily because of these
barriers, it will continue to be a priority for the Canadian government to seek improved access to the EU for Canadian
fisheries exports.
In April 1999, the EU opened a 4,000-tonne autonomous tariff rate quota (ATRQ) for cooked and peeled shrimp, under
which the product was subject to a reduced duty of 6% if imported for further processing in the European Union. As a
result of efforts by the federal and provincial governments, together with industry representatives, EU member state
fisheries ministers have since extended the ATRQ to cover the years 2001 to 2003, and have increased the quantity to
5,000 tonnes annually. In the medium term, Canada will address the broader seafood tariff issues during the current
round of multilateral trade negotiations. In the short term, Canada is seeking to persuade the EU to make improvements
to the ATRQ for cooked and peeled shrimp, including a further increase in the quota and a relaxation of the ATRQ's
restrictive end-use requirements (which call for further processing in the European Union).
Aluminum
Reduced tariffs on aluminum ingot and other non-ferrous metals remain a priority for Canada. With regard to aluminum,
the Canadian industry's efforts (supported by the government) to encourage like-minded EU producers and users of ingot
to urge the European Commission to reduce or suspend the 6% tariff has resulted in some success. The European industry
has announced that it is willing to give up this tariff under certain conditions in the current WTO negotiations.
Bans and Restrictions on Certain Non-ferrous Metals
The European Commission has adopted directives on waste management of electrical and electronic equipment, including
batteries and accumulators, and on end-of-life vehicles. These directives provide for restrictions and an eventual ban
on the use of certain substances of which Canada is an exporter, including lead, mercury and cadmium. These substance
bans, when implemented, will have adverse trade implications for Canada with respect to both the non-ferrous metals in
question and the manufactured products that use them. While Canada shares the Commission's commitment to the protection
of health and the environment, it continues to question whether such product bans are proportionate to any attendant
risks, and is concerned that such measures may be more trade-restrictive than necessary to achieve their intended
objectives.
The directives refer to a "producers' responsibility network," but it is not clear who will be responsible for creating
the end-of-life collection, take-back and dismantling schemes, or the recycling, reuse and recovery programs that the
directives set out. Canada is concerned by the potential to create a closed market for raw material resources whose
access is limited to treatment facilities operating strictly within a closed "producers' network." The directives also
appear to contain export restrictions that may be inconsistent with international trade rules.
As discussions are still taking place within the EU on the substance and domestic implementation of these directives,
Canada will continue to monitor them and will convey its concerns to the Commission.
Eco-Labelling
The European Commission has an eco-labelling scheme called the "Flower Program" that covers a number of paper products
such as sanitary papers. The criteria used for the program largely reflect European domestic environmental requirements,
values and European-based performance measures. Canada has been excluded from the process of setting criteria. It is
concerned that the Flower Program has not been developed in a transparent manner and that it discriminates in favour of
EU producers.
Canada will closely follow EU developments in this field to ensure that the European Union adheres to the WTO Technical
Barriers to Trade Agreement's Code of Good Practice in its eco-labelling program, particularly provisions dealing with
transparency and ensuring fair access of foreign producers to eco-labelling programs.
Forest Certification
There is an ongoing marketplace demand in Europe—especially within the United Kingdom, Germany and the Netherlands—for
forest products to be certified as being manufactured using wood that comes from sustainably managed forests. The Canadian
industry is endeavouring to address this demand, using one or more of the four certification schemes currently available
or under development in Canada.
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 about any measure requiring mandatory labelling for forest products based on
non-product–related process and production methods. Procurement policies that specify that all products must carry
the label of one specific certification scheme to the exclusion of other equivalent approaches are also of concern.
We also remain vigilant to protect against raw material specifications based on local conditions or inappropriate
criteria. Canada 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.
Organic Food Products
The EU has detailed regulations on the production, labelling and inspection of organic products, and maintains a list
of countries from which imports of organic products are permitted. Canada does not appear on this list. Until December 31,
2005, countries not on the list may still export organic products to the EU, provided that the importer furnishes evidence
that the imported products were produced in a manner equivalent to EU rules and inspected according to EU-equivalent
measures. The case-by-case nature of this approval process creates uncertainty for Canadian exporters. After 2005,
imports of organic products must originate in countries appearing on the EU list.
Canada will submit a formal application for inclusion on the EU list, which will demonstrate how Canada's certification
system and national production standard are equivalent to that of the EU. This application will be submitted once revision
of Canada's National Organic Standard is complete and the organic standard is approved by the Standards Council of Canada.
Certification Bodies for Building Products
Under the EU New Approach directive, only European agencies will have the authority to serve as "notified bodies"
and carry out tasks pertaining to conformity assessment procedures such as testing and certification of building products.
Canadian agencies currently accredited in the present European regime will lose their ability to directly certify Canadian
products for use in Europe and will have to pursue subcontracting arrangements. Discussions with the European Commission
are ongoing in an effort to resolve this issue.
Sanitary and Phytosanitary Import Regulations
Pinewood Nematode
Since July 1993, the European Union has required that Canadian exports of softwood lumber, except cedar, must be
heat-treated in order to ensure the destruction of the pinewood nematode. This requirement has effectively eliminated
Canadian exports of green softwood lumber to the European Union. Canada has indicated on numerous occasions that it
views this mandatory requirement as excessive, given the negligible risk of establishment of pinewood nematode in the
European Union as a result of trade in Canadian green softwood lumber.
Over the years, Canada has proposed alternative measures to control pinewood nematode, while allowing trade in green
lumber. However, the EU has not accepted Canadian proposals for less trade-restrictive measures. At Canada's request,
WTO consultations were held on July 15, 1998, but the issue remains unresolved. An EU technical team visited Canada in
September 2002 to renew scientific discussions. There was a good exchange of views, and the EU has asked Canada to
submit a new technical proposal. Canada is reviewing this option with industry and provincial representatives.
In 2000–2001, Canada developed and sought EU approval of an innovative paperless certification program to streamline
paperwork requirements for exports of kiln-dried lumber that has been heat-treated (KD-HT) as part of the kiln-drying
process. During the September 2002 EU visit, significant progress was made on the KD-HT paperless certification file.
Canada is confident of a positive outcome and anticipates shipping KD-HT lumber under this innovative program in early
2003.
Beef Hormones
In 1989, the EU banned the use of growth-promoting hormones in livestock and imposed a ban on the import of beef
produced with such hormones. Both Canada and the United States consistently opposed the ban on the grounds that it was
not based on scientific evidence and was an unjustified barrier to trade. The safety of growth-promoting hormones has
been endorsed by the Codex Alimentarius and by Canada's own scientific reviews.
After Canada and the United States referred the matter to the WTO, a panel concluded in August 1997 that the EU
ban violated the Sanitary and Phytosanitary Measures Agreement since it could not be justified by scientific evidence.
The panel's conclusion was further confirmed by the WTO Appellate Body in January 1998. The European Union was given
until May 1999 to implement the WTO rulings, but it failed to do so.
In August 1999, because the European Union did not implement the WTO rulings, and given the absence of an acceptable
offer of compensation as an interim solution, Canada imposed retaliatory tariffs on a list of imports from the European
Union, including beef, cucumbers, gherkins and pork. These measures will remain in effect until such time as the EU
implements the WTO rulings or offers a satisfactory compensation package on an interim basis pending implementation of
the WTO rulings. Canada's objective remains open access to the EU market for Canadian beef. More information is available
on the
Department of Foreign Affairs and International Trade Web site.
Canada–EU Veterinary Agreement
On December 17, 1998, Canada and the European Union signed a Veterinary Agreement governing trade in live animal
products, fish and fish products. The agreement establishes a mechanism for achieving recognition of equivalent sanitary
measures between Canada and the European Union aimed at improving bilateral trade. A Joint Management Committee (JMC) has
been established to implement the agreement.
A fourth meeting of the JMC was held in Brussels in December 2002. There is an obvious commitment by regulatory
authorities on both sides to work together to realize all potential benefits of this agreement. Progress is particularly
important for Canada, given the expected increase of member states from 15 to 25 countries in 2004. Significant progress
was made on procedures to determine equivalency, with a specific view to reaching equivalency for Canada's pork meat
sector. Canada hopes to carry this momentum forward in order to establish equivalency in other commodity areas, including
the fish and seafood sector. Information exchange under the agreement has also been quite successful.
Animals and Animal Products
Despite progress made under the EC–Canada Veterinary Agreement, Canadian exporters in certain sectors continue to be
affected by the EU's measures related to Bovine Spongiform Encephalopathy (BSE) or "mad cow disease." Canada, which has
never had a native case of BSE, is BSE-free under Office International des Epizooties criteria. Canada's feed ban and
surveillance and monitoring system also meet and exceed international standards. As a result, we have strongly protested
EU measures that have unfairly targeted exports from Canada and will continue to work to resolve outstanding issues with
the EU.
Seed Potatoes
A derogation from EU phytosanitary requirements is required for continued access to the European Union for Canadian
seed potatoes. The particular pests of concern are bacterial ring rot and potato spindle tuber viroid. Traditionally, an
annual derogation had been granted based on requirements that Canada conduct stringent laboratory testing and certification
of disease-free zones in Prince Edward Island and New Brunswick for all exports to the European Union. In September 1999,
the EU Standing Plant Health Committee approved a three-year derogation for Canadian seed potatoes. Historically, Italy
and Portugal are the only member states that take advantage of the derogation.
In December 2002, the EC approved another three-year derogation for seed potatoes from New Brunswick and Prince
Edward Island. Canada has conveyed its strong interest in the issue and has presented information to the EC in order to
expand the derogation to all potato-growing regions of Canada. We will continue to work with the EU to meet this objective.
Genetically Modified Canola
A group of member states has been blocking the approval of genetically modified organisms for marketing in the European
Union since March 1998. It was hoped that the approval process would restart on October 17, 2002, with the adoption of
revised legislation (Directive 2001/18/EC) strengthening the rules of the risk assessment and approvals process, but the
de facto moratorium remains in place. Some of the blocking member states have stated that they will not agree to the
approval of GMOs until proposed regulations on the labelling and traceability of these products are adopted.
Because of the moratorium, Canada is unable to export canola to the EU. In the early 1990s, Canadian exports of canola
to the EU showed consistent growth, peaking at $425 million in 1994 (with a five-year average of $185 million from 1993
to 1997). During the four-year period following the moratorium (1998 to 2001), Canadian exports of canola to the EU
declined sharply to an annual average of only $1.5 million.
Canada's position is that GM canolas have gone through rigorous examination in Canada. There are no health, food safety
or environmental reasons why GM canolas under commercial cultivation in Canada should not be approved for the EU market.
In 2001, some 75% of Canadian canola acreage was seeded with varieties with novel traits. Canada continues to express its
concerns to the EU at the highest levels regarding this market access barrier, and continues to review all available
options under the WTO.
Genetically Modified Organisms: Labelling and Traceability
In an effort to unblock the approval process and rebuild public confidence in EU safety regimes, the European
Commission proposed new compulsory regulations for GM food, feed and the traceability and labelling of GMOs (July 2001).
Member states and the European Parliament have stated that strict compulsory regulations will assist in rebuilding EU
consumer confidence and would have to be in place as a condition of restarting the GMO approval process.
In November 2002, the EU Agriculture Council reached a political agreement on compulsory labelling requirements for GM
food and animal feed that calls for food containing more than 0.9% GM material to be labelled as containing GMOs. The
threshold for the adventitious or technically unavoidable presence of GMOs that are unauthorized, but have a favourable
risk assessment, has been set at 0.5%. The Council also agreed to extend labelling legislation to include food or
ingredients produced from GM crops (e.g. maize oil produced from GM maize and biscuits produced using maize oil from
GM maize). In December 2002, the EU Environment Council reached an agreement that will require each point in a
distribution chain to maintain documentation on each separate event and/or variety of GMO within each shipment.
The intention is to ensure traceability throughout all stages of placing a product on the market,
"from the farm to the store shelf." These proposed EU GMO regulations now return to the European Parliament for second reading,
with final approval expected by the end of 2003.
Canadian industry remains concerned that the proposed measures will have a serious impact on Canadian commodity and
processed food exports to the EU, which are valued at more than $750 million per year. Canada remains strongly opposed
to the proposed EU regulations on compulsory labelling and traceability, because they are aimed at only one particular
method of production and are not commensurate with the risks. The Canadian government has made repeated high-level
representations to the EU Commission and member states. Canada continues to work closely with the United States and
other trading partners on this issue.
Other Issues
Government Procurement
Canadian suppliers do not have full access to EU public procurement opportunities in a number of sectors, including
telecommunications equipment and services, transportation equipment and electric utilities. Particular barriers that
restrict access include standards, certification, qualification and local-content requirements. Canada is addressing
these issues with the EU in the WTO Government Procurement Working Group to further reduce or eliminate tariff and
non-tariff barriers.
Telecommunications
Canadian companies have benefited from the ongoing liberalization of EU telecommunications regulatory frameworks. As
we have noted in previous years, particularly in regard to Germany, there have been problems in effectively implementing
some provisions. However, we note that national regulators (including Germany) and the European Commission are addressing
such problems. As well, the new European Union regulatory framework for electronic communications networks includes
pre-emptive use of regulation where there is significant market power in relevant markets. We will continue to monitor
these developments to assess their real impact and their timeliness in making competition effective.
On October 9, 1998, the Canadian government announced the launch of negotiations with the EFTA states (Iceland,
Liechtenstein, Norway and Switzerland). Negotiations have been largely completed and agreement was reached on most
issues. However, there are a few outstanding issues that have yet to be resolved. As a "first generation" free trade
agreement, the deal focuses on the elimination of industrial tariffs, some liberalization for agriculture, and new
cooperation in trade facilitation and competition.
Two-way trade with the EFTA countries was valued at $7.0 billion in 2002, with Canadian exports totalling almost
$1.5 billion and imports of $5.5 billion. Foreign direct investment from EFTA members into Canada in 2001 totalled
over $10 billion.
Overview
The Russian economy has recovered strongly from the financial crisis of 1998, which resulted in a drastic decline in
Canada's goods exports to the Russian Federation. Exports began growing slowly again in 1999 and continued building
through 2000. This was followed by a noticeable upsurge in 2001 of some 45%, which tapered off in the third quarter
due to a drop in oil prices—oil is Russia's main export. Exports in the first half of 2002 were down 20% but showed
signs of increased activity in the second half, with oil and gas equipment, agri-food and building materials as the
main sectors.
Imports of goods from Russia to Canada registered a slight improvement in 2000 over 1999, but declined substantially in
2001, due to a large drop in crude oil shipments to Canada. Declining crude oil shipments continued in the first half of
2002 but were offset by increases in fish, uranium and some forms of steel imports.
Canadian exporters that hesitated to enter the Russian market following 1998 have taken the economic good news as a
sign that it is now time to re-engage in Russia. In February 2002, Prime Minister Chrétien led a Team Canada trade mission
to Russia, during which 77 new business deals were signed by Canadian enterprises, with a value of $337 million. According
to Statistics Canada, Canadian investment in Russia was estimated at $423 million in 2000. Canadian direct investment is
principally in the mining, high-technology and agri-food sectors. Existing investors in the mining sector appear to be
showing some renewed interest in expanding operations and acquiring new deposits.
In September 2002, Agriculture and Agri-Food Minister Lyle Vanclief led a delegation, including representatives from
the Canadian Food Inspection Agency, to Moscow to discuss access to the Russian market for Canadian seafood. Access for
continued exports of seafood was secured during the visit, and export certification requirements for Canadian products
were confirmed.
President Putin's emphasis on Russia's accession to the WTO has provided impetus to the economic reform process.
Despite some discussions within Russia as to the speed of the process, a strong commitment still exists as reflected
in continuing reforms to improve the economy and business climate. Russia will continue to be a strategic market for
the Canadian resource extraction, housing and construction materials, and agri-food sectors. Reforms to the Russian
land code and increased investment by Russian conglomerates in the agriculture sector point to increasing opportunities
for Canadian exporters in this area. The Canadian government is working to improve access to this important emerging
market along two main tracks: through the bilateral Intergovernmental Economic Commission (IEC) and accession negotiations
on Russia's entry into the WTO.
Bilateral Trade
The Canada–Russia Intergovernmental Economic Commission was established in 1993 with a mandate to improve trade and
investment and to identify and resolve trade and investment irritants and obstacles that Canadian and Russian companies
face in each other's markets. It met most recently in Ottawa in November 2001, with the Canadian delegation led by
International Trade Minister Pierre Pettigrew. Sectoral working groups (focusing on oil and gas, agriculture, housing
and construction, mining, and the Arctic and the North) work to enhance opportunities and market access for Canadian
investors and traders. As outlined in the new Canada–Russia Joint Action Plan issued during Team Canada 2002, work is
proceeding on the establishment of new IEC working groups covering market access, transportation and advanced technologies,
with the latter group comprising subgroups for telecommunications, aerospace and information and communications
technologies.
Through the Intergovernmental Economic Commission and other bilateral initiatives, including technical cooperation,
Canada is promoting the transition to a market economy in Russia. We have also pressed for the removal of numerous
administrative barriers to trade and investment and for uniformity in the application of laws and regulations. During
the Team Canada 2002 mission in February, Canada Mortgage and Housing Corporation signed a protocol with the State
Committee on Construction, Architecture and Housing Policy that marked the establishment of a new Russian building
code for single-family dwellings based on Canada's building code. This will create new opportunities in the Russian
market for Canadian builders and suppliers of construction material.
WTO Accession
The Russian Federation applied to join the World Trade Organization in 1993. Canada is a member of the WTO working
party charged with examining Russia's application and is also holding bilateral discussions with the Russian Federation
to improve market access for Canadian goods and services. The first of 18 formal working party meetings was held in July
1995 and the most recent in March 2003. Canada has underlined its support for Russia's eventual membership in the WTO on
commercially viable terms generally applicable to newly acceding members. Russia's membership in the WTO will give
Canadian traders and investors enhanced and more predictable access to this important market. It will also help to
consolidate the economic transition process in the Russian Federation and will strengthen the multilateral trading system.
Russia made good progress in 2002 in bringing its trade and economic policies up to WTO requirements, particularly in the
area of agricultural support policies that distort trade. Canada will continue to press for increased transparency as well
as for more open, secure and non-discriminatory market access for Canadian providers of goods and services. Further
working party meetings will build on the impetus of extensive and positive bilateral meetings between Russia and various
working party members.
The Russian Federation presented its initial tariff offer in February 1998. In June 1998, Canada initiated bilateral
discussions in Moscow, leading to several revised offers from Russia over the last two years, most recently in December
2002. Progress has been made, primarily on industrial tariffs, during bilateral discussions that are continuing. Canada
is seeking tariff concessions on products of current and future export interest to Canadian suppliers of goods such as
oil and gas equipment, agricultural and agri-food products, fish and fish products, vehicles, aircraft and
telecommunications equipment. Canada will, among other things, encourage Russia to bind all of its tariffs,
join various zero-for-zero initiatives agreed in the WTO and provide non-discriminatory access, for example, in
the oilseeds sector.
The Russian Federation presented an initial services offer in October 1999. In May 2000, Canada initiated bilateral
discussions on services, and subsequent bilateral meetings have been held at regular intervals since. Russia submitted
its latest services offer in October 2002. Canada is seeking from Russia binding commitments relating to the temporary
movement of natural persons and the establishment of commercial presence. Canada has particular interests in the areas
of professional and other services, including computer and related services, basic and enhanced telecommunications,
financial services, construction services, environmental services and transport services. Canada is also looking for
the removal of restrictions and discriminatory measures for the cross-border, consumption-abroad and commercial-presence
modalities in these sectors.
Canada currently funds two projects, for a total of $6.3 million, that provide direct support to Russia's decision
makers in their efforts to facilitate Russia's accession to the WTO. These projects are Macleod-Dixon's WTO Assistance
and Carleton University's Capacity Building in Trade Policy and Law.
Investment
The protection of Canadian investment in Russia remains a priority for Canada. Canada has a significant interest in
Russia, particularly in the mining sector. Natural resource development and other forms of infrastructure, services and
industrial development are key areas of potential interest for Canadian investors. While the encouragement of foreign
investment is a stated priority of the Russian government, there have been difficulties creating a stable, attractive
investment climate. Concerns for investors in the Russian Federation have included poor corporate governance, the
complexity and uncertainty surrounding domestic legislation, lack of effective recourse through the judicial system
to resolve investment disputes, administrative barriers and "over-bureaucratization," and unwelcoming or difficult
regional authorities. Of particular interest to Canadian investors in the mining sector is the Draft Subsoil Code
currently being studied and likely to be amended by the Russian Duma (parliament); the proposed changes are generating
a mixed reaction from potential foreign investors and legal experts, with concerns focusing on licensing procedures,
lack of clarity in the respective roles of the regional and federal governments, and the absence of any reference to
guaranteeing foreign investor participation in large tenders for mineral deposits.
Over the past year, the Russian government has introduced new legislation in areas such as taxation, customs procedures
and judicial reform, as well as improving the laws on enterprise bankruptcy and joint stock companies. These moves are
encouraging. As well, business registration, licensing and verification requirements have been streamlined, and a new
voluntary corporate governance code was introduced in 2002.
The existing FIPA signed between Canada and the former Soviet Union in 1989 provides more limited protection for
Canadian investors than recent NAFTA-style investment agreements. Negotiations toward an enhanced Canada–Russia FIPA
have been suspended pending the completion of Russia's accession to the World Trade Organization.
Overview
Canadian exports to Ukraine increased to $27 million in 2002, which is in line with data from 1999 and 2000. Canadian
exports increased across a wide spectrum of mostly manufactured products, due to growth in the Ukranian economy. Canada's
export market in Ukraine is for unique, value-added, highly engineered products, typically in the energy, construction,
agriculture and agri-food sectors. Significant land reforms have also spurred investment in Ukraine's agriculture sector,
which has resulted in growing Canadian exports of machinery and livestock.
Imports from Ukraine continue to be dominated by a variety of steel products and, as a result, have been subject to
some volatility. Counterbalancing this are textile and clothing imports, which have been showing increasing strength over
the past three years. In addition, 2001 recorded the first-ever imports of meslin and oats to Canada, reflecting the
above-noted land reforms, resulting investment and increased production.
Canada–Ukraine bilateral trade peaked at $148 million in 2000, with the balance historically in Ukraine's favour due
largely to significant steel imports from Ukraine, and then fell to $81 million in 2001 before rebounding to $112 million
in 2002. Mid-year figures for 2002 show some stabilization at this level but with greater product diversification and less
reliance on steel imports.
Canada ranks in the top 15 foreign investors in Ukraine at close to $80 million, particularly in the energy sector and
in glass manufacturing. Canada has a foreign investment protection agreement with Ukraine.
The Canadian government is working to improve access to the Ukrainian market and expand bilateral trade and investment
through WTO accession negotiations and the bilateral Canada–Ukraine Intergovernmental Economic Commission. The
Canada–Ukraine IEC was established in 1996 with a mandate to identify opportunities and resolve trade and investment
irritants and obstacles for Ukrainian and Canadian companies. The fourth IEC meeting was held in October 2001 in Ottawa,
co-chaired for Canada by International Trade Minister Pierre Pettigrew. A high level of participation by Canadian
companies reflected growing interest in this market, although discussions largely focused on clearing various impediments
to trade, including enforceability of court rulings, a new Land Code, the removal of export taxes, and a process to
facilitate the resolution of commercial disputes.
WTO Accession
Ukraine applied to join the World Trade Organization in 1993. Since then, Canada has focused on the need for more open,
secure and non-discriminatory market access for Canadian exports of goods and services. In 2000, Canada's Ambassador to
the WTO, Sergio Marchi, was chosen by its members to chair the Ukraine working party.
While progress toward WTO accession was slow during the first seven years, the pace picked up following the working
party meeting held in July 2000. In the past year, Ukraine has continued to take important steps in preparing domestic
legislation and regulations to bring significant parts of its trade regime into conformity with WTO obligations.
Nevertheless, further work is still required in a number of important areas—including customs fees, customs valuation,
agricultural support programs, technical barriers to trade, sanitary and phytosanitary measures, and, in particular,
intellectual property—as well as in establishing the domestic regulations and administrative practices to implement the
required domestic legislation.
Canada–Ukraine bilateral market access negotiations on goods and services concluded in February 2002 with the signature
of a bilateral record of agreement. Canada continues to work with other WTO members to bring Ukraine's WTO accession
process to closure. This goal can be achieved only through stable and predictable access to Ukraine's market; market
access commitments secured by Canada and other WTO members need to be supported by lower and simplified import fees and
charges, less burdensome customs procedures, and reduction of other non-tariff measures. Canada will continue to monitor
closely Ukraine's efforts to liberalize such measures in the context of its WTO accession process.
The Centre for Trade Policy and Law (CTPL) of Ottawa and Carleton universities is working with the Ukrainian Ministry
of Economy to build Ukraine's capacity to participate effectively in the accession process and implement its WTO
obligations. The Trade Policy Capacity Building project involves three areas:
- technical assistance on international trade issues to address short-term needs in accession to the WTO;
- institutional capacity building, through developing a Ukrainian Centre patterned after the CTPL to meet the
longer-term needs of both the government and the private sector; and
- an internship program for graduate students of international trade.
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