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Opening Doors to the World
Canada's International Market Access Priorities 2003
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Opening Doors to Asia Pacific
Since its inception in 1989, the Asia-Pacific Economic Cooperation forum's agenda has evolved in response to
developments in world trade. APEC ministers and leaders have acted as an informal caucus in support of strengthening
the multilateral trading system. During the latest APEC Economic Leaders' Meeting held in Los Cabos, Mexico, in October
2002, leaders focused on the war against terrorism and the promotion of shared prosperity as a consequence of
globalization. The juxtaposition of the two issues highlighted the interdependence of security and economic prosperity.
Leaders re-committed APEC to the war against terrorism and launched the Secure Trade in the APEC Region (STAR)
initiative, a program building on the achievements of the G8 Kananaskis Summit and designed to enhance security in
the transportation sector.
The Mexican theme of complementing APEC's economic and trade liberalization goals with social and development targets
was prominent. Developing countries expanded on the theme by noting the importance of trade- and terrorism-related
capacity building in the quest for shared economic prosperity. The Mexican chair's emphasis on shared prosperity,
reiterated throughout the year, clearly shaped the discussion of economic issues. Leaders stressed the need to address
the challenges of globalization through capacity building, and pointed to APEC's work on micro-enterprises, human
capacity building and Brunei's connectivity targets. They also expressed the need for substantive progress in trade
negotiations and in advancing developing-economy concerns in the WTO Doha Round, and issued a call for additional work
on WTO capacity building.
Following up on the "Shanghai Accord"—adopted in 2001 to reinvigorate APEC's trade agenda and help provide momentum for
achieving APEC's goal of free and open trade and investment in the region by 2010 for developed economies and 2020 for
developing economies—members endorsed the APEC Trade Facilitation Action Plan. The plan aims to cut transaction costs
in the region by 5% by 2006, and includes a menu of concrete actions and measures that members can implement to reach
this goal. A World Bank–APEC study on the economic impact of trade facilitation (which Canada oversaw on behalf of the
APEC Committee on Trade and Investment) was also released at the APEC Leaders' Meeting. The study shows that improvements
in trade facilitation could increase intra-APEC trade by US$280 billion. In addition, APEC members agreed on a Statement
to Implement APEC Transparency Standards, which is designed to foster greater transparency in laws, procedures and
administrative rulings of APEC members.
While rule making and liberalization in WTO negotiations are the key means by which APEC member economies will progress
toward the goal of free and open trade and investment, APEC leaders also support the pursuit of WTO-consistent bilateral
or regional free trade agreements as an additional way to reach this goal.
Throughout 2002, Canada was involved in a number of initiatives aimed at building the capacity of developing economies,
oversaw the World Bank–APEC study on Trade Facilitation and organized a capacity-building workshop on trade facilitation
with Thailand and Hong Kong, China. As a co-chair of the APEC Group on Capacity Building, which coordinates all of APEC's
work in this area, Canada has developed a Web-based directory of all WTO capacity-building projects offered within APEC.
Furthermore, the Canadian International Development Agency (CIDA) will soon start to implement its $9-million APEC
economic integration program, which will provide WTO capacity-building assistance throughout Southeast Asia.
APEC Results in 2002
- Adoption of a new Statement on Counter-Terrorism and launch of the Secure Trade in the APEC Region initiative,
which focused on transportation security.
- Adoption of a Trade Facilitation Action Plan that will cut business transaction costs by 5% over five years.
- Expression of strong support by APEC leaders for more progress in the Doha Round of WTO negotiations.
- Adoption of a Statement to Implement APEC Transparency Standards on administrative transparency, which will improve
market access throughout the region.
- Publication of a major report by the World Bank on the economic benefits of trade facilitation in APEC.
- Implementation of a new format for peer review of APEC individual action plans (IAPs), which will involve outside
expertise and greater business participation.
- Implementation of a wide range of capacity-building projects on trade policy.
- Organization of an APEC "Dialogue on Globalization and Shared Prosperity."
- Organization of a high-level meeting on micro-entreprises, which led to the creation of a small and medium-sized
enterprise (SME) subgroup specifically focused on issues relevant to micro-enterprises.
- Implementation of the E-APEC Strategy, through the organization of a wide range of workshops, seminars and training
programs on issues related to bridging the "digital divide."
- Approval by leaders of a new Life Sciences Forum, which will provide an opportunity for the pharmaceutical industry
to interact with governments in the APEC region.
- Adoption by ministers of revised guidelines on non-member participation, which will make it easier for APEC forums
to interact with outside organizations.
- Creation of a Gender Focal Point Network to ensure that APEC forums implement the Framework for the Integration of
Women in APEC Activities.
- Adoption by leaders of the Shanghai Accord, which will accelerate movement toward achieving the Bogor Goals.
Thailand, which will host APEC in 2003, is expected to emphasize APEC's work on economic and technical cooperation,
with a focus on human resources development and the development of adequate social safety nets throughout the region.
During 2003, one of Canada's major objectives will be to implement the APEC Leaders' Statement on Counter-Terrorism
and the STAR initiative. Canada will also continue to implement the Trade Facilitation Action Plan, consistent with
the direction provided by the Shanghai Accord, and aiming to expand opportunities for Canadian businesses in the
region. In addition, Canada will play a major role in APEC's WTO capacity-building initiative and will continue to
support APEC's work on "new economy" issues. Canada will also promote public engagement in APEC, including dialogues
with non-governmental organizations, in order to build popular support for the economic reforms needed to sustain
regional growth and prosperity. Finally, Canada's IAP is up for review in 2003 along with those of Australia and
Thailand.
Biotechnology Initiatives Within APEC
Within APEC, Canada is active in two biotechnology initiatives. Under the Agricultural Technical Cooperation Working
Group, Canada shepherds the Research, Development and Extension of Agricultural Biotechnology (RDEAB) Subgroup. This
group provides a unique forum for member economies to identify and address common issues in agricultural biotechnology.
The RDEAB Subgroup is mandated to carry out agricultural biotechnology work in four areas:
- science-based assessment of the products of biotechnology;
- technical cooperation;
- public transparency and information exchange within member economies; and
- capacity building.
To date, the RDEAB Subgroup has held biotechnology workshops in Australia, Canada, Malaysia, Thailand and the United
States. The next workshop is scheduled to take place in China in 2003.
In addition to the work undertaken by the RDEAB Subgroup, Canada is participating in the APEC high-level policy
dialogue on biotechnology. This initiative has been undertaken to encourage senior-level policy dialogue on broader
biotechnology issues facing member economies. The first meeting was held in Mexico City in February 2002. A subsequent
meeting took place in Chiang Rai, Thailand, in February 2003.
Overview
Japan is Canada's second-largest national trading partner (after the United States), with 2.1% of total exports, and
is the third-largest source of foreign direct investment in Canada. Canada is a leading supplier to Japan of a number of
products of key export interest, such as lumber, pulp and paper, minerals, meat, fish, grains and oilseeds, and
prefabricated housing. While resource-based exports continue to represent much of our trading relationship, Canada
is an increasingly important source of sophisticated, value-added, technology-driven products and services imported
by Japan. Canadian exports of aircraft, software, and resource and environmental products and services are in increasing
demand. Japan is also a major source of portfolio investment in Canada, and Canadian direct investment in Japan continues
to respond favourably to deregulation and market opportunities in the Japanese economy. While Japanese foreign direct
investment is shifting from the traditional North American and European destinations to Asia, in particular China, Canada
is maintaining its share vis-à-vis the United States (though this investment tends to be concentrated in particular
sectors such as automotive and agri-food).
In 2002, Canada's total merchandise trade with Japan was $23.7 billion. After declining steadily since the late 1990s,
in 2002 Canadian exports to Japan remained steady at $8.3 billion. Imports from Japan increased 5.3% in 2002 to $15.4
billion. In 2002, Canada exported $1.8 billion in services and imported $2.0 billion. The long-term trend in Japan is
toward a growing demand for cost-competitive and innovative imports, which represents a significant market opportunity
for Canadian exporters.
In order to identify opportunities arising through regulatory reform and restructuring in Japan's changing marketplace,
the Department of Foreign Affairs and International Trade carried out an analysis of trading patterns in potential sectors
of opportunity. The results of this study have been shared with Canadian and Japanese business, and interested
representatives of the Japanese government. The analysis points to new opportunities in information and communications
technologies, value-added food products, transportation equipment, building products and prefabricated buildings, medical
devices and pharmaceuticals, new energy products such as fuel cells, power generation and environmental services. In
addition, DFAIT and Industry Canada commissioned a study on opportunities in the services sector that identified where
shifts in the Japanese economy have created significant potential. Produced by the Japan Market Resource Network in
August 2002, this study found that the most potential for Canadian business lies in services related to information
technology (IT), the environment, accounting, architecture and health care; however, barriers such as domestic opposition
to foreign competition, excessive regulation and opposition to deregulation of certain sectors pose serious challenges for
Canadian companies aiming to enter the Japanese market. We will use these findings to supplement our efforts in established
trade sectors (such as automotive, aerospace, forest products, minerals, agriculture and fisheries, and consumer products)
with new initiatives aimed at supporting these emerging priority industries.
Japanese awareness of Canada as a sophisticated business partner will also be raised through Canadian efforts to
attract Japanese FDI. DFAIT is working closely with Investment Partnerships Canada, other federal government departments,
and provincial and municipal authorities to maintain and attract Japanese investment into Canada. Toyota's decision in
2000 to produce its Lexus RX 300 luxury sport-utility vehicle in Canada, starting in 2003, is a testament to increasing
Japanese recognition of Canada as a good place to do business. The Toyota plant in Cambridge will be the first to
manufacture the Lexus RX 300 outside Japan.
In support of efforts to "rebrand" Canada in Japan as a technologically sophisticated society and to encourage
diversification of our traditional commodities-based trade relationship, the 1999 Team Canada trade mission to Japan
emphasized the strengths of Canada's high-technology sectors. These efforts have begun to bear fruit, with signs of
increased business activity, especially in the high-tech sectors. Despite a worldwide slowdown in the information and
communications technologies (ICT) sectors, Canadian companies continue to take advantage of opportunities in the huge
Japanese ICT market. During the past two years, many Canadian ICT companies have entered the market directly or
indirectly through partners, agents and distributors, and the share of manufactured goods and value-added services
exports to Japan continues to increase.
Collaboration with the Japan External Trade Organization (JETRO) is ongoing and productive. For example, JETRO and
Industry Canada are working on a formal agreement to link their respective databases for the benefit of the Japanese
and Canadian business communities. The partnership will focus upon increased levels of data sharing, technical cooperation
and improved electronic access for Japanese and Canadian firms to information on each other's markets.
Examples of Government-Supported Market Development Activities in 2002
Following the success of the IT trade missions that visited Canada in 2000 and 2001, JETRO sent an unprecedented third
IT trade mission to Canada in October and November 2002. This one-week tour of Canada, with stops in Montreal, Toronto and
Vancouver, brought 15 Japanese companies into contact with dozens of interested Canadian companies in each of the cities
visited. Two journalists from Japanese business publications also accompanied the mission to report on the Canadian IT
sector and the opportunities it affords Japanese firms.
In October 2002, the Canadian Embassy hosted a fuel cell seminar attended by representatives from the Canadian private
sector, government, academia and industry associations. The seminar introduced the potential of the Japanese market to
Canadian participants and helped position Canada as a leader in this emerging field with Japanese industry and government
decision makers. It also established and further secured links between the two nations at the industry and government
levels. Attendance and media exposure far exceeded expectations, with over 650 Japanese companies participating.
In June 2002, the Canadian Embassy organized a week-long biotech mission to Canada—visiting Toronto, Montreal and
Vancouver—for a delegation of 49 representatives from 30 Japanese biotechnology companies. The goal of the mission was
to expose a broad cross-section of the Japanese life-sciences sector to Canadian biotechnology and to seek out ways for
Japan and Canada to share biotechnology expertise through investment and commercial partnerships.
In March 2002, the Canadian Embassy worked with the Consulate General in Osaka to organize an event called the
"Multimedia Showcase." Seven participating Canadian companies had an opportunity to introduce their products and
technology to a selected Japanese business audience, including potential partners, agents and distributors. The event
helped to give greater profile to the leading position of Canadian companies in this segment of the ICT industry. The
subsequent ICT-related mission to Japan, in February 2003, focused on ICT security.
The aerospace sector has also been active. In February 2002, a large Japanese delegation visited Canada, led by the
Japanese Ministry of Economy, Trade and Industry and the Society of Japanese Aerospace Companies. The delegation, which
included over two dozen leading Japanese aerospace manufacturers, participated in a symposium in Montreal before visiting
sites in Montreal, Toronto and Winnipeg. The Japanese, impressed by the quality and quantity of Canadian aerospace firms,
expressed strong interest in exploring further collaboration with the Canadian industry. As a result, a delegation of
Canadian companies visited Japan in February 2003, led by the Aerospace Industries Association of Canada and Industry
Canada.
As an ongoing service, the Canadian Embassy continues to manage a Japanese language Web site that offers a wealth of
material on Canada's commercial capabilities in all our priority sectors, as well as information on the wide range of
embassy services available.
Managing the Relationship
Canada and Japan continue to promote trade development and economic cooperation under the 1976 Framework for Economic
Cooperation and the Joint Communiqué announced during the 1999 Team Canada mission led by Prime Minister Chrétien. The
Joint Communiqué reaffirmed the intention of the two governments to advance regulatory cooperation with a view to
facilitating trade in regulated products. It also welcomed the interest expressed by the private sector in undertaking a
study of bilateral trade and investment opportunities.
While trade policy meetings provide a comprehensive view of the trade and economic relationship, they are complemented
by regular issue-specific talks conducted by government departments and agencies in Canada and Japan, in such sectors as
telecommunications, culture, building codes and related product standards, environment, tourism, air services, oilseeds
and transportation. This range of themes is indicative of the breadth of our trade and economic relationship with Japan.
A review of the more than 40 bilateral consultative mechanisms between Canada and Japan was completed in June 2001 by
the Canadian and Japanese governments. The exercise was designed to identify mechanisms that have completed their roles,
as well as those that should be strengthened in the context of efforts to revitalize the bilateral relationship.
Regulatory cooperation between Canada and Japan also continues to advance on many fronts, both multilaterally and
bilaterally. Canada will continue efforts to extend cooperation in areas such as biotechnology, building codes,
competition policy and customs administration. In particular, we will continue discussions between health authorities
on the observation of inspections and the possibility of mutual recognition of good manufacturing practices in the
pharmaceutical industry. Negotiations for an agreement between Canada and Japan regarding cooperation on anti-competitive
activities were announced in June 2002 and began soon thereafter. This agreement seeks to coordinate enforcement
activities between the Canadian and Japanese authorities responsible for regulating competition.
Regulatory reform has been a Japanese government priority for a number of years. Canada (along with Australia, New
Zealand, the U.S., the EU and domestic organizations such as Keidanren) has made regular annual submissions to the
Japanese regulatory reform authorities, whose latest incarnation is the Regulatory Reform Council (formerly the Regulatory
Reform Committee). Canada's submission in 2002 to the Regulatory Reform Council followed along the lines of the 2001
submission, which was expanded to include not only areas of particular concern to Canada, such as telecommunications and
building standards, but also more cross-cutting structural issues related to the overall investment environment in Japan.
Many of these issues have serious implications for the overall recovery of the Japanese economy and for the ability of
Japan to attract foreign, including Canadian, investment. In December 2001, the Regulatory Reform Council, which reports
directly to the Prime Minister's office, released its Three-Year Program for Promoting Regulatory Reform, following up
with a revised report in the first quarter of 2002. Submissions from foreign governments, including the Canadian
government, are an integral part of this process. The Japanese government has also announced a Program for the Promotion
of Special Zones for Structural Reform.
Canada welcomes and encourages private sector initiatives to improve trade relations. In May 2000, at the Canada–Japan
Business Committee (CJBC) meeting in Tokyo, the CJBC leadership emphasized the need for greater diversification and
announced that
"concrete steps toward a Japan–Canada Free Trade Agreement would be an effective tool for promoting bilateral trade and investment."
At the CJBC meeting in Calgary, in May 2001, the CJBC proposed that the two governments,
in consultation with the Canadian and Japanese private sectors, explore the idea of a
"new comprehensive partnership framework for enhancing the two countries' economic relationship."
At the most recent CJBC meeting in Sendai in May 2002,
the CJBC called upon the two governments to expedite the negotiation of a social security agreement that would encourage
two-way investment, as well as reduce the disadvantages that an agreement currently being negotiated with the United
States would create for Canada in the context of an integrated North American market.
Market Access Results in 2002
- Japan and Canada have agreed to negotiate a new framework for the bilateral trade policy relationship on housing and
building products, formal approval of which is expected at the Canada–Japan Housing Committee meeting in 2003. Japan
replaced Section 38 of the Building Standards Law (BSL) with a system allowing for recognition of foreign evaluation
bodies and foreign approval bodies, and continued to move toward increased adoption of international (ISO) standards
for building products.
- Health Canada and the Ministry of Health and Welfare of Japan have agreed to implement an Information Exchange Project
(IEP) on a Good Manufacturing Practices (GMP) Compliance Program for drug products; the IEP is intended to serve as a
first step in regulatory collaboration on a GMP for drug products, leading to the mutual recognition of each other's drug
GMP compliance certificates.
- Negotiations for an agreement between Canada and Japan regarding cooperation on anti-competitive activities were
announced in June 2002 and began soon thereafter. This agreement seeks to coordinate enforcement activities between
Canadian and Japanese authorities responsible for regulating competition.
- Canada, in collaboration with embassies from other countries, has worked with the Ministry of Health, Labour and
Welfare to facilitate the approval of food additives in regular use internationally and to assist in bringing Japanese
legislation into line with international practice.
- Japan has accepted official export certification that Canada is free of Bovine Spongiform Encephalopathy (BSE).
Canada's Market Access Priorities for 2003
- Continue to press for a reduction of duties applied to vegetable oils (particularly canola), processed foods, red
meats, fish, forest products (spruce-pine-fir lumber, softwood plywood, laminated veneer lumber, oriented strand board
and laminated beams), non-ferrous metals and leather footwear.
- Continue to press for the elimination of specific technical and regulatory barriers in Japan in order to facilitate
Canadian exports in such priority sectors as food, building products and services, including regulations and standards
that vary from international norms (e.g. practices regarding the use of foreign clinical data when approving pharmaceutical
products and medical devices, Japan Industrial Standards for plastic resins, and levels of formaldehyde in infants'
clothing).
- Continue to seek an agreement on totalization and social security with a view to reducing costs of social security
contributions and helping to protect the pension rights of employees in both countries.
- Continue to press for enhanced capacity and access to a number of new slots at Narita Airport and code-sharing rights
for services beyond Japan.
- Given the rapid advancement of fuel cells and related industries, press for laws regarding hydrogen usage, as well
as for a review of the deleterious substances law (i.e. as it affects the production, storage and distribution of methanol
and related substances).
Improving Access for Trade in Goods
Agri-food, Fish and Beverage Products
Japan is the world's largest net importer of agri-food, fish and beverage products. In 2002, Canadian agri-food and
fish exports to Japan amounted to $2.6 billion. Canada seeks further access to this important market, and has concerns
with Japanese measures regarding tariffs, safeguards, labelling of food derived from GMOs, and import requirements
regarding food sanitation and plant health. While most market access concessions and tariff reductions will be discussed
in the context of the current overall WTO negotiations, other issues are being addressed at the bilateral level.
Safeguard Measure on Chilled and Frozen Pork
Canada remains concerned about the Japanese snapback safeguard measure on pork in the form of an increase of
approximately 25% in the minimum import price. Since it was first triggered in 1995, the snapback safeguard has been a
significant issue for the Canadian pork sector. As currently administered, this measure creates considerable market
fluctuations for Canadian suppliers and Japanese importers. Canada is seeking a resolution that addresses the concerns
of both exporters and importers by eliminating the negative market impacts of the snapback safeguard. This is a priority
in the WTO agriculture negotiations.
Safeguards on Beef
During the Uruguay Round of WTO negotiations, Japan's trading partners agreed to a specific safeguard mechanism for
beef that would protect domestic producers from sudden import surges. The occurrence of BSE in Japan in September 2001
resulted in unusually low consumption of beef and a decline in both domestic and imported beef sales. Since then, the
market has recovered, domestic production is now above pre-BSE levels and live animal prices are above the
government-recommended price band. In contrast, import volumes, while they have grown, are still below pre-BSE levels.
Although the growth in beef imports is merely a return toward the former level of imports, not a surge, it may
nevertheless trigger the application of the safeguard. The outcomes will be higher prices for importers and a slower
recovery of Japan's beef market, neither of which are advantageous for Japanese producers and consumers.
Canada recognizes Japan's right to use safeguard mechanisms negotiated during the Uruguay Round. However, it has
pointed out to Japan that, under certain circumstances, the automatic application of safeguards does not serve its
intended purpose. As Japan's legislative process allows for discretion in the implementation of the safeguard,
extraordinary market circumstances should be considered before automatically implementing this mechanism. Canada will
continue to work with key exporting countries to ensure that Japanese officials do not automatically apply this safeguard
mechanism.
Tariffs on Canola Oil
Japan's duties on imported cooking oils are applied on a specific rate basis (i.e. a certain number of yen per
kilogram). As a result of the Uruguay Round of multilateral trade negotiations, specific duties for these products
have decreased in Japan. As ad valorem equivalents (AVEs) of specific duties are inversely related to import prices
(i.e. when import prices fall, the AVEs rise, and vice versa), specific duties progressively cushion domestic producers
against competition from lower-priced imports. The AVEs of specific rates on canola generally approach or exceed 20%.
These high tariffs give Japan's domestic oil-crushing industry (and producers of other related products, such as margarine)
, a significant advantage over the Canadian oil-crushing industry when competing for a limited supply of oilseeds.
Canada will seek the maximum negotiable reduction in these high tariffs in the WTO agriculture negotiations.
Greenhouse Peppers
The B.C. greenhouse vegetable industry wants to export greenhouse peppers to Japan. However, Japan wants further
assurances that tobacco blue mould does not occur in B.C. The Canadian Food Inspection Agency and the industry are
working on a proposal to satisfy Japanese concerns or requirements.
Building Products and Housing
The building products industry in Japan is subject to a complex web of laws and regulations that set out necessary
product standards and uses that Canadian exporters must address. There is ample opportunity to make it difficult for
imports from Canada to compete in the Japanese market by providing preferential treatment to Japanese suppliers. While
some progress was made during the recent amending of the Building Standards Law (BSL) and Japan Agricultural Standards
(JAS) Law, there remain major issues that severely restrict Canadian market access. Of particular importance are the
many aspects of the Building Standards Law relating to fire, which are unique to Japan, arbitrary and prescriptive,
and which limit wood construction by rendering wood frame buildings less economical. Japanese regulations are criticized
for being difficult to understand, unnecessarily complex and costly, developed without public participation and slow to
change. Given new and existing international building technologies and materials, Japan will be urged to revise the
Building Standards Law as it relates to test methods, criteria and related restrictions, and to adopt international
codes, standards and practices.
Canada has in place a number of formal and informal connections with the Japanese government. Both joint work between
Canadian and Japanese scientists (e.g. the Canada–Japan Research and Development Workshop) and formal bilateral meetings
provide the opportunity to press for change. In 2003, Canada will host the Canada–Japan Housing Committee, which will
provide the opportunity to demonstrate Canadian technologies and products, as well as the more open and public Canadian
building code and standards system. Technical matters will be pressed at trilateral Canada–U.S.–Japan talks (Building
Experts Committee, Japan Agricultural Standards Technical Committee), to be held in 2003 in Japan.
Value-Added Building Products
Under the revised Japanese building code, a new system of testing and approval bodies has been established that has
proven very difficult for Canadian manufacturers to use. Currently, only Japanese testing and approval bodies are
authorized under the new system. In many cases, the process to be used by a Canadian manufacturer is not clear. In 2002,
an initiative to analyse this system and possibly develop a roadmap was launched, and this work will continue into 2003.
Tariffs on Spruce-Pine-Fir Lumber and Softwood Plywood
Japan's system of tariff classification distinguishes between the species and dimensions of lumber, regardless of
end use. As a consequence, spruce-pine-fir (SPF) lumber imports, worth over $400 million per year to Canada, are subject
to duties ranging from 4.8% to 6.0%, whereas other species imported for the same purpose enter duty free. The 6.0% tariff
on softwood plywood is also considered to severely limit Canadian exports and unfairly favour the domestic Japanese
industry. Reducing SPF and softwood plywood tariffs are a high priority for Canada and will be pursued in the WTO
multilateral trade negotiations.
Three- and Four-Storey Wood Frame Construction
A major new market opportunity in Japan is urban construction of three- and four-storey mixed use buildings. Although
three-storey wood frame construction is now allowed in quasi-fire protection (QFP) zones, it is restricted to a maximum
of only 1,500 square metres, and requires uneconomic property line setbacks and limiting distance calculations for
exterior wall openings. These restrictions unfairly and sharply limit the use of three-storey wood construction. There
is also a size limit of 3,000 square metres for non-QFP zones, and Japanese fire-wall specifications (which could allow
larger structures) are unfair and not based on science. Four-storey wood frame construction is increasingly being used
in North America, but faces a difficult and unclear regulatory regime in Japan. A performance-based system is being
implemented by Japan, but in comparison to steel (which is produced in Japan), wood frame construction from Canada is
very unfairly treated. Canada will use bilateral and multilateral forums to press for a more science-based approach to
open this market to Canadian industry.
Performance Requirements for Lumber for Traditional Housing
Canada is working to ensure that performance criteria being developed for traditional zairai housing in Japan are
not based solely on the use of Japanese-grown tsugi lumber (which is one of the weaker species), but recognize the
characteristics of other species (e.g. hemlock, which is stronger). Otherwise innovation and efficiencies are lost.
The process for implementing new products and technologies after formal approval is obtained is unnecessarily difficult
and needs streamlining.
Agricultural Standards for Building Products—Standards Review Process
Under the revised Japan Agricultural Standards system, specific standards are now reviewed on a five-year cyclical
basis. Canada continues to work with the Ministry of Agriculture, Forestry and Fisheries (MoAFF) in various technical
forums to provide data to assist in the revision of standards concerning building products. In 2002, the MoAFF undertook
the review of standards for plywood and structural glue-laminated timber. Issues arose, particularly around the
formaldehyde testing of plywood and the exclusion of jack pine from the glulam standard, which were pursued at the
Canada–U.S.–Japan Japan Agricultural Standards Technical Committee (JASTC) meeting in 2002. In 2003, the review of
the standards critical to Canada that apply to dimension lumber is to occur, and Canada at the request of Japan tabled
its issues at the JASTC meeting. Some Japanese agricultural standards address issues that are not relevant to the core
purpose of the standard—such as linking the wood treating standard to the a-grading standard, and including moisture
content adjustment factors under the plywood standard. Canada will press for relaxation of the five-year review cycle
to provide for the introduction of new technology and the resolution of outstanding issues. JAS143, in particular, is
not scheduled to be reviewed until 2005 and yet some very important issues are still outstanding. Canada will work to
ensure that Canadian stakeholders have access to the MoAFF process and full membership on the review committees, and will
continue to press for fairer treatment of Canadian products.
Japan Agricultural Standards for Building Products—Inspection and Approval System
In June 2000, Japan implemented a revised JAS law allowing a foreign organization to obtain Foreign Registered
Certification Organization (FRCO) status provided that the foreign country was deemed to have an equivalent conformity
assessment system. Canada was recognized as having an equivalent system, and by March 2002 three organizations were
recognized as FRCOs (CANPLY, CMSA, NFPA/COFI) and all interested Canadian mills had been transferred to this new process.
Canada will continue to work with Canadian organizations to monitor this system and press for elimination of unnecessary
inspection, paperwork and expense. For example, the JAS law currently requires monthly inspections and monthly reports
from mills. This frequency of inspections and of reporting is, in Canada's view, unnecessary and redundant.
Improving Access for Trade in Services
As the number of international firms doing business in Japan continues to rise, there is an increasing focus on
regulatory and other non-tariff barriers that may be impeding the development of business in underdeveloped areas of
the Japanese economy, particularly in services. There has been significant business development in those areas in which
there has been regulatory reform, notably financial services and telecommunications. Canada continues to point out areas
in which further regulatory reform would have similar stimulative effects.
Environmental Services
In addition to the normal challenges faced by services providers, companies in the environment sector face other
barriers particular to their field. The differences in standards and definitions of various services offered are
particularly burdensome. Furthermore, the administrative qualification (bid) procedures for government-related projects
are quite different from Canada's, creating more challenges for Canadian companies. It is also difficult for Canadian
companies to gain access to environmental projects funded by overseas development assistance. Canada will continue to
monitor the situation.
Telecommunications Services
The Japanese telecommunications services market has become significantly accessible to foreign companies. All
restrictions on foreign investment in the telecommunications sector, except in Nippon Telegraph and Telephone (NTT)
Corporation, have been lifted. Canada continues to monitor Japanese implementation of General Agreement on Trade in
Services commitments for basic telecommunications services, and it is encouraged by Japan's move to reduce the
interconnection rates for foreign carriers to NTT's local and long-distance networks.
Canada urges Japan to continue to lower the interconnection rates by adopting a long-run incremental cost
system—a pro-competitive methodology for interconnection fees. Several concerns, however, have been flagged by Canadian
companies. These concerns centre on the ability of new entrants to access the network; reporting procedures required of
new entrants by the Ministry of Public Management, Home Affairs, Posts and Telecommunications; regulation of dominant
carriers (the long-distance services provider NTT Communications, NTT West and NTT East in the local communications
market, and NTT DoCoMo in the wireless market); and the ability of new entrants to build new networks. These concerns
could be addressed by ensuring fair access (including rights of way) to land and facilities owned or controlled by
utilities and by facilitating construction and expansion of infrastructure over public land and facilities. Canada
is also concerned about the independence of the regulator, and is monitoring any changes in its role as a result of
the former Ministry of Posts and Telecommunications becoming part of the larger general affairs ministry with the
implementation of administrative reform on January 6, 2001.
Air Transport
In the context of our longstanding and productive bilateral air relationship, Canadian officials have tried over
the past two years to obtain for Canada enhanced capacity, access to some of the new slots available at Narita Airport
on the second runway (which opened in the spring of 2002) and code-sharing rights for services beyond Japan. Air Canada
and All Nippon Airways have been working very closely to develop their commercial plans, especially for code-sharing
beyond Japan—which Japanese negotiators have declined to permit. It is nevertheless clear that the intensified commercial
cooperation will benefit both airlines.
Canada remains concerned that, following a number of discussions between our respective air transport negotiators,
as well as through diplomatic channels, Japanese officials have refused to grant Canada any new capacity or slots at
Narita. These exclusions will compromise Canada's opportunity to expand air services to Tokyo for years to come.
Canada will continue to press Japan to reconsider its position on these issues, which would result in enhanced services
for the travelling public and commercial benefits for the airlines of both countries.
Financial Services
Japan has made significant progress in deregulating the financial services sector in recent years. The financial
services landscape has changed significantly since the financial "Big Bang" reforms were launched in 1995. With the
entry of many foreign financial services providers, even though they still do not hold major market shares, Japan's
financial sector is well on the path to a major transformation. Clearly, this has led to more competition, more consumer
choice and a more resilient financial system. But Japan can do more to foster a dynamic and efficient financial sector.
Genuine and transparent regulatory reform will best be achieved with a regulatory system that focuses on macro-level
financial supervision. Despite improvements, Japan's financial supervisors still apply a micro-level regulatory and
supervisory approach, for example, on product approval. The cultural shift away from the "administrative guidance approach"
has not been completed. Applying an ex post supervisory approach that promotes efficiency and competition,
rather than the current a priori regulatory and supervisory approach, would enhance the efficiency of Japan's financial
system without harming its safety or soundness.
Canada continues to have a general concern that, to a large extent, services provided by most government financial
institutions in Japan can be efficiently provided by private sector institutions. The involvement of government
enterprises in the financial sector, some of which (such as the Postal Savings system or yucho and the Postal Life
Insurance system or kampo) have very sizable market shares, distorts competition significantly. Public institutions
should be made to compete in a manner that does not discriminate against the private sector. Canada supports the efforts
of Prime Minister Koizumi's government to streamline and privatize government financial institutions. The package of
economic and financial reforms released on October 30, 2002, however, puts a significant emphasis on providing fiscal
loan and loan guarantee programs through existing government financial institutions. Canada hopes that this does not
indicate a reduced effort to reform government financial institutions. As much as possible, Japan should seek to use
private institutions to promote increased financing and corporate rehabilitation. Foreign financial institutions and
companies can play a useful role in achieving the Japanese government's reform efforts.
A final general issue is the weak state of Japan's financial system. Further deregulation is being held up due to
concerns about the fragility of the financial system, especially the major banks. Canada is encouraging Japan to
continue to promote an aggressive and early resolution of the banking system's problems, including disposing of
non-performing loans and restoring bank capital.
Banking and Securities
Most major industrialized countries have moved to a financial conglomerate regulatory structure that allows for greater
synergies between banking, securities and fund management. The United States was the most recent major economy to adopt
such an approach, with the repeal of the Glass–Steagle Act, which required a strict separation between banking and
securities. In Japan, the "Glass–Steagle" approach to regulation is still in place.
The requirement in Japan to maintain so-called firewalls between banking and securities has been a significant concern
to Canadian financial institutions operating in Japan. It imposes considerable additional costs and does not allow for
optimal efficiencies for clients. In some cases, it may actually increase risk. During 2002, some Canadian financial
institutions in Japan dealt with this ongoing concern by significantly scaling back or moving to close down their bank
branches. Canada continues to request that the Financial Services Agency (FSA) offer a more flexible regime that is
sensitive to smaller institutions' need to contain costs. A longer-term goal, which fits with the FSA's current efforts
to define a medium-term vision for the financial sector, should be to break down the walls between the lines of business
noted above.
Life Insurance
The Postal Life Insurance system or kampo holds about 40% of life insurance assets in Japan. Canada strongly welcomes
the passage of legislation to establish the Postal Service Public Corporation, effective April 2003. However, this
legislation does not alter the fact that kampo is not subject to the same kind of regulatory oversight, or operating
costs, as private sector life insurers. Kampo is not subject to the Insurance Business Law, the Law on Sales of Financial
Products or the Commercial Code. Furthermore, it is not supervised by the Financial Services Agency. Finally, because
its products are fully guaranteed by the government, kampo is not required to contribute to the Policyholders Protection
Corporation.
Canada is requesting that kampo be made to operate on the same basis as private life insurers, both foreign and
domestic. As a first step toward rolling back kampo's activities, the government should instruct kampo not to engage
in the creation of new products that could be provided by private sector insurers. Failing this, Canada is requesting
that any new financial services activities proposed for the postal financial institutions (whether kampo or yucho) be
subject to full public notice and comment, and that the responses be given due consideration by officials before their
introduction. Canada is also requesting that any proposed report or legislation relating to the financial service
activities of yucho be subject to full public notice, comment and consideration before policy decisions are taken by
the government.
The life insurance industry has expressed a concern that the preferential treatment accorded by the Japanese government
to kampo is a violation of the General Agreement on Trade in Services. Canada will study this issue carefully.
With the purported goal of ensuring consumer transparency, the FSA applies a micro-level analysis to product and rate
approvals. This supervisory approach hinders competition because it is time-consuming and stifles innovation. Canada notes
the progress achieved since the establishment of the FSA but requests that greater efforts be made to move from a system
of prior product approval to a system of notification combined with clear standards of disclosure.
Legal Services
In the face of globalization, increased merger and acquisition activity, and domestic regulatory reform in Japan,
there is an acute need for legal services with expertise in cross-jurisdictional issues to assure due diligence. These
services could be provided through the cooperation of Japanese (bengoshi) and foreign lawyers (gaiben); however, due to
the restrictive structure of the "specified joint-enterprise" system, expertise in Japan is limited and Japan-based
businesses often seek services abroad. The Foreign Lawyers Law explicitly forbids partnerships and most joint enterprises
between Japanese and foreign lawyers. Exceptions are made under the specified joint-enterprise system, which allows for
such partnerships but limits the scope of their practice to a tightly defined mandate. In addition, foreign lawyers
cannot employ Japanese lawyers and are subject to restrictions with respect to the type of advice they are allowed to
provide. Japanese lawyers are not subject to similar limitations. Canada continues to urge Japan to remove restrictions
on partnerships and employment between foreign and Japanese lawyers, and to abolish current restrictions on the ability
of foreign lawyers to provide legal advice on home or third-country law for which they are qualified.
Investment
Japan is the third-largest source (after the United States and the European Union) of foreign direct investment in
Canada, with a stock of $8.4 billion. A recent study reported that over 540 Japanese-affiliated companies have established
in Canada, accounting for more than 35,000 jobs. Although Japan's relationship with Canada through its FDI greatly
enhances the ability of Canadian industry to compete in the global marketplace, Canada accounts for a relatively minor
portion of Japanese FDI worldwide.
Since 1999, Japanese Ministry of Finance figures have shown an increase in the number and value of Japanese investments
in China (and a move away from North America and Europe). This trend is tied to the Japanese belief that their economic
interests lie in further integration with China and Asia.
In Canada, investment has traditionally been in the resource industries and heavy manufacturing, but trends indicate
a shift to high-technology elements of the manufacturing industries, plus IT and biotechnology. The lion's share of
Japanese FDI is in the automotive industries. This investment trend has maintained its impetus over the past years,
reflecting the strong showing of Japanese autos in the North American marketplace. Efforts to encourage investment to
focus on high-end research and development are part of the strategy to direct the FDI into areas with maximum benefit
for Canada over the long run.
While large greenfield investments still happen, an increasing number of smaller investments, strategic partnering and
joint ventures are taking place. These investment decisions are often made by Japanese subsidiaries in North America,
which are assuming the responsibility that once belonged to Japanese head offices. Canadian senior officials regularly
visit the North American headquarters of Japanese companies, in addition to headquarters in Japan, to promote further
investments in Canada.
Canadian FDI in Japan is lagging behind that of other OECD countries, although there have been some notable investments
in the past few years. Regulatory reform in Japan's financial sector and the shift to consolidated accounting should
increase financial transparency and encourage more Canadian investment into Japan. On a prefectural level, a growing
interest in attracting foreign investment, especially into high-technology areas, has been noted, although to date,
growth in Canadian FDI has concentrated in the important urban areas.
Japan imposes few formal restrictions on FDI and is working to remove or liberalize most of the legal restrictions that
apply to specific economic sectors. Prior notification is now required only for investments in certain restricted sectors.
However, longstanding structural impediments continue to hamper FDI into Japan. These impediments include a high overall
cost structure, bureaucratic discretion, exclusive buyer–supplier networks, a lack of labour mobility, bankruptcy
regulations and a lack of financial transparency, which serves to inhibit the establishment and acquisition of businesses.
Japan has, however, made some progress in implementing its deregulation program, with measures intended to improve the
overall investment climate. Measures include revising the Commercial Code with respect to corporate capital structure
and corporate governance, increasing funding to the Japan Fair Trade Commission to improve enforcement of anti-competition
laws, implementing special structural reform zones, introducing increased competition into the telecommunications sector
and introducing revised regulations related to e-commerce and intellectual property.
Overview
The People's Republic of China (not including the Hong Kong Special Administrative Region) is Canada's fourth-largest
export market. In 2002, Canada's total exports of goods to China were $4.0 billion, a decrease of 5.1% over 2001. The
total value of imports of goods in 2002 was $16 billion, an increase of 26% over 2001.
In recent years, and as a result of its accession to the World Trade Organization, China has accelerated the pace of
liberalization and reaffirmed its commitment to social and economic reform. Results of the reform initiatives can be seen
in the increased degree of personal freedom and choice afforded the general population. China now has the world's largest
consumer market, with 1.3 billion persons, who have an ever-increasing discretionary income and a taste for international
goods and services. These facts, coupled with China's growing international prominence, mean changes to the economic
landscape in Asia and, quite likely, the world, will soon follow.
Canada's approach to its relationship with China takes into full account China's rapidly growing importance in world
affairs. An economic partnership between China and Canada is a key element in supporting long-term relations and
encouraging China's further integration into global and regional political and economic institutions.
Despite the opportunities that China presents, a number of significant problems and practices impede broad Canadian
access to all segments of the Chinese market. Additionally, some elements of the former planned economy remain, so in
certain types of economic activity, or in projects whose scale exceeds a threshold size, central and/or local governments
continue to play a key and sometimes decisive role.
As a component of the regular, high-level contact between the two countries, Canada and China engage in formal
consultations to review matters of interest and concern related to economic development, trade and investment. This
process is facilitated through regular bilateral discussions, the most prominent being the Joint Economic and Trade
Committee. These country-to-country meetings give Canada the opportunity to register its concerns regarding access to
the Chinese market and communicate its views on economic development and the importance of transparency and rules-based
market economics. The 18th Joint Economic and Trade Committee meeting will be held in Canada in 2003.
China formally acceded to the WTO on December 11, 2001. The extensive commitments China has made to substantially lower
barriers to foreign trade and investment, and to increase the predictability and transparency of its trade regime, will
engender profound changes in its economy and governance. This will result in significant new business opportunities for
Canadian exporters and investors in sectors in which Canadian firms have a comparative advantage. China will continue to
face considerable challenges in fully implementing the agreement and in pursuing further economic reform, but in the long
run, economic growth and prosperity will be strengthened.
As well, as a member of the WTO with a significant portion of world trade, China will be an increasingly important
participant in the Doha Round negotiations. Canada will continue to engage China in this regard.
Market Access Results in 2002
- Chinese authorities approved an additional 18 Canadian meat plants for exporting to China, bringing the total to 41,
which includes virtually all interested exporters. These new approvals are expected to boost exports of meat to China.
- Four quarantine protocols were signed covering in vitro fertilization, bovine semen, cattle and regular bovine embryo
exports. The in vitro protocol provides new access, while the other three support existing access for these products.
- The federal government, in partnership with the Canadian wood products industry, has continued to work closely with
the Chinese Ministry of Construction to address amendments to specific codes that cover wood frame construction. The new
Inspection Code was approved in August 2002, while the new Design Code should be approved early 2003. According to the
Canada Wood Bureau, in 2003 the new building codes will contribute to a two- or threefold increase in Canadian softwood
lumber exports to China.
- In December 2001, the Chinese Ministry of Finance implemented Canada's request to reduce the value-added tax for
feed-grade peas from 17% to 13%. Effective January 1, 2003, the Ministry of Finance will apply this reduction to the
entire "dried peas" tariff line, which includes both food and feed peas. This constitutes a net benefit of $1.2 million
to Canadian pea exporters based on existing volume of $27.1 million. Over the past four years, Canada has exported 270,000
tons of dried peas to China, valued at $62.5 million and making China our fifth-largest customer.
Canada's Market Access Priorities for 2003
- Continue to address market access problems that arise and seek improved access for Canadian agricultural products.
- Continue to address the problems arising from the new regulations that China has put in place in the banking,
insurance and fund management sectors.
- Continue to address industry's concerns about burdensome Chinese requirements to re-certify under the new system of
certification and accreditation.
- Continue discussions toward reinitiating negotiation of a bilateral foreign investment protection agreement.
Improving Access for Trade in Goods and Services
China's Accession to the WTO
Since its entry into the WTO, China has been working energetically to implement its accession commitments. Tangible
progress is being made on several fronts. China is reforming its systems for the management of international economic
activities according to WTO rules. A solid domestic legal foundation for the fulfilment of its WTO commitments is being
laid. The range of commodities subject to quota and other licensing restrictions is being narrowed, and tariffs are
being reduced on over 5,000 tariff lines, ensuring that China will attain an overall average tariff level of 12% by 2005,
in keeping with commitments made. There is a discernable trend away from macro-economic control and adjustment through
administrative measures toward market signals and mechanisms, which will accelerate the establishment of a market economy
in China. Profound changes are being made to the structure of China's economy, the relationship between government and
industry, government structures and procedures, and legal and regulatory frameworks. However, these changes will take
time.
Canada and other parties will continue to ensure that China adheres to WTO rules aiming to ensure transparency and
consultation with trading partners in the implementation of new policies and procedures.
A Transitional Review Mechanism (TRM) was established as part of China's accession. This review will take place every
year for the first eight years following China's accession, and then again in the 10th year. It will give WTO members the
opportunity to review progress being made by China in implementing its commitments in a manner consistent with WTO rules.
Canada will participate actively in this process.
Implementation of China's WTO Commitments—Highlights
On January 1, 2002, China made a broad range of tariff reductions, including on key Canadian exports or potential
exports. Examples include tariff reductions for frozen beef (from 39% to 25%), malt (from 26% to 10%), lightweight coated
paper (from 15% to 9%), mobile communications base stations (from 9% to 0%), and small and mid-sized autos
(from 70% to 44%).
China also made hundreds of regulatory and legislative revisions and issued numerous new regulations as part
of meeting WTO requirements. In some cases, these regulations provided new opportunities for Canadians. For example,
regulations were issued that, for the first time, allowed for foreign investment in the mutual fund management business;
other regulations were issued that, for the first time, allowed for foreign majority ownership of engineering consulting
companies. In other cases, revised regulations improved the business environment, such as in the area of intellectual
property protection, or provided greater transparency about licensing procedures and criteria, such as in banking.
For more information on the terms of China's accession to the WTO, please visit the
Department of Foreign Affairs and International Trade Web site.
Regulations on Imports of Genetically Modified Organisms (GMOs)
China's Ministry of Agriculture (MOA) promulgated the country's new Safety Regulation of Agricultural Genetically
Modified Organisms in May 2001. Since then, the Ministry of Health (MOH) and the State Administration for Quality
Supervision, Inspection and Quarantine (AQSIQ) have each issued separate and supplementary regulations. These new
regulations cover the labelling, research, production, marketing, movement and import/export of agricultural GMOs.
Canada made several representations to China with respect to the lack of transparency of the regulations and their
potential to disrupt trade between the two countries.
China introduced interim measures in March 2002 to allow trade to continue while field testing and approval of
foreign-approved agricultural GMOs were completed. The interim measures, which were initially in effect until December
20, 2002, were later extended with some modifications to September 20, 2003. Further, the Ministry of Health has since
indicated that it will coordinate with the Ministry of Agriculture with respect to timing and to minimize duplication.
AQSIQ has as yet not confirmed its timetable for implementing its measures.
While a process for importing GMO products into China is currently in place, it is cumbersome and remains a cause for
concern. Canada will continue to carefully monitor the GMO file and make representations as necessary to ensure that trade
in Canadian GMO products is not impeded.
Standards and Technical Regulations
Since joining the WTO, China has been moving ahead with implementation of its WTO commitments with respect to standards
and technical regulations. These include establishing contact points for enquiries about regulations, improving
transparency by notifying the WTO of new regulations being put into place, and ensuring that standards, technical
regulations and conformity-assessment procedures are the same for imported and domestic products. China has created
a new agency, the Certification and Accreditation Administration of the PRC (CNCA), to certify both imported and domestic
products, and has established a single certification mark (the CCC mark) to replace previous marks applied separately
to foreign and domestic products. However, there have been some problems with this transition: suppliers have expressed
concern about burdensome Chinese requirements to re-certify under the new system, including often-costly inspection
visits to the manufacturer. Canada will continue to address these concerns to ensure that, in accordance with the WTO
Agreement on Technical Barriers to Trade, technical regulations and other measures taken by China are the least
trade-restrictive possible.
Administration of Tariff Rate Quotas (TRQs)
The establishment of tariff rate quotas for wheat and canola oil was a significant gain from China's WTO accession
negotiations and will represent significant export opportunities.
China's State Development Planning Commission (SDPC) is responsible for the administration of agricultural TRQs. Its
"Interim Rules and Regulations for Agricultural Imports Tariff Rate Quotas" establish the parameters for allocating TRQs
on certain agricultural products. The TRQ on wheat and wheat products will rise to over 9.6 million tonnes by 2004, with
the over-quota tariff rate falling to 65% in that year (the in-quota rate will be a constant 1%). The TRQ for canola oil
was established at 878,900 tonnes in 2002 and will rise to 1.2 million tonnes by 2005. The over-quota tariff rate will
fall to a single tariff of 9% in 2006, at which time the TRQ on canola oil will be eliminated. Due to uncertainty over
new GMO regulations (see section on China's GMO rules), large domestic wheat harvests and delays in TRQ allocation,
Chinese imports of wheat and canola oil were extremely low in 2002 relative to the size of the TRQ.
"State trading entities" (STEs) have monopoly import status for a number of commodities in China, including goods that
are also covered by TRQs. These privileges are being reduced or eliminated according to the schedule negotiated for each
product. For wheat, China has committed to allocate 10% of the TRQ volume to direct, private sector imports. For canola
oil, only a minority of the TRQ is reserved for the six STE canola oil importers, the rest being available for direct
imports. By 2006, the STE reserve will have been completely phased out.
China has committed to administer TRQs in a transparent, predictable and uniform manner using clearly defined time
frames and administrative procedures. However, Canada has a number of concerns with China's TRQ administration, mainly
relating to the lack of transparency in the allocation procedures and the subdivision of TRQ volumes into two categories,
one for domestic consumption and the other for processing for re-export. This subdivision of the quota is inconsistent
with China's commitment to allow a certain, scheduled quantity of access to the Chinese market. The ability of the Chinese
government to change the relative sizes of the two import categories is problematic, since it undermines the fundamental
principle of predictability—the objective of a WTO-consistent TRQ system. Canada continues to share its concerns with
China over TRQ administration both bilaterally and in the WTO.
Financial Services
China has put in place new regulations in the banking, insurance and fund management sectors, which have provided
increased transparency and helped to facilitate foreign investment and competition. However, there are problems with
these regulations, which we are seeking to address. The banking regulations contain very high (and inflexible) minimum
capital requirements and other provisions that limit the ability of Canadian banks to expand their branch networks and
finance lending operations. The insurance regulations remain insufficiently clear and contain high minimum capital
requirements. Moreover, complex, multi-stage approval procedures remain for licensing in all financial subsectors.
Canadian-Style Wood Frame Construction
Although only about 10% of urban Chinese own their homes, the Chinese government is now encouraging its people to buy
housing. Estimates of the Chinese housing construction market range from 9 million to 18 million units per year. Although
it has come under consideration only in the last few years, the Canadian system of wood frame construction is gaining
recognition within the developing villa and townhouse niche in China. China's wood frame housing construction market
could increase to 50,000 units annually by 2012, from a total of 500 2×4-style homes in 2002. This offers a huge potential
opportunity to Canadian producers of dimension lumber, oriented strand board and/or plywood, as well as suppliers of
related goods and services to China.
China is finishing the revision of its building codes. The new Timber Structure Inspection Code (GBJ 206) was approved
in August 2002, and the new Timber Structure Design Code (GBJ 5) should be ready for 2003. The previous building codes
did not recognize the Canadian system of wood frame construction or reference Canadian products, grading rules or design
properties. The Canadian government, in partnership with the Canadian wood products industry, is working closely with the
Chinese Ministry of Construction to address amendments to specific codes that will cover wood frame construction. The
ability to have input into the development of the Chinese building codes provides Canada with a unique opportunity to
influence the future design of Chinese housing. Estimates have been made that, with the new building codes, exports of
Canadian softwood lumber to China might triple in 2003. Canadian softwood exports to China increased an average of 72%
on year to 190,000 cubic metres in 2001.
In 2002, the Canadian government committed up to $35 million to expand Canada's wood products markets in countries
such as China, which present huge opportunities for the wood products industry. Under this initiative, the federal
government, the provincial governments and the industry will work together to increase exports of Canadian wood products
and brand Canada as a trusted, reliable and preferred supplier of quality wood products. The initiative will incorporate
a number of elements (builder training, housing certification, promotion, etc.) to capitalize on the anticipated outcome
of the revisions to the Chinese building codes.
Border Trade
Special measures on border trade have been adopted by China. These measures provide that commodities imported in
small volumes by approved enterprises via designated land border ports of entry are subject to import duty and
value-added tax at half the usual rates. There are concerns that these preferential measures are being applied to
commercial shipments of commodities, such as pulp, to the disadvantage of Canadian exporters. We are seeking
clarifications on the scope and implementation of these measures, and we will continue discussions with Chinese
authorities to ensure that China addresses this matter in a way that is consistent with WTO rules.
Newsprint
Anti-dumping duties of between 59% and 79% have been in effect in China on Canadian newsprint since a preliminary
determination on July 10, 1998. The duties will expire on July 10, 2003. China may issue a public notice before the
expiration of the duties, calling on interested parties to submit their views regarding the renewal of anti-dumping
duties.
Investment
In 2002, China was the largest recipient of FDI in the developing world. Canadian direct investment in China has shown
a consistent increase in recent years, rising from $419 million in 1997 to $960 million in 2001 (while Canada received
$203 million in direct Chinese investment during 2001). The average size of new investments is steadily increasing, and
the profile of the average investment is shifting from small family enterprises to the more sophisticated operations of
multinational companies. Canada continues to consider China a priority for the negotiation of a foreign investment
protection and promotion agreement, and discussions toward restarting negotiations are ongoing.
Overview
The Hong Kong Special Administrative Region maintains considerable autonomy in economic, trade, cultural and political
affairs and will continue to do so until 2047. Hong Kong has its own fiscal system and does not remit revenue to the
central government, nor does the central government levy tax. The Hong Kong dollar, pegged to the U.S. dollar, continues
to circulate as legal tender, and Hong Kong remains a free port and a separate customs territory. This distinct economy
is a member of APEC and the WTO under the name "Hong Kong, People's Republic of China."
Hong Kong remains an aggressively free-market economy, with virtually no barriers to entry or doing business. With
the exception of excise taxes on autos, fuel, liquor and cigarettes, there are no duties, taxes or quotas on imported
goods.
Canadian firms continue to enjoy excellent access to the Hong Kong market, and there are no outstanding bilateral
market access issues. Canada exported $1.2 billion to Hong Kong in 2002 and also imported goods worth almost $1 billion.
Trade in services is extensive. The Hong Kong government continues to develop its own economic, fiscal and budgetary
policies based on its own interests and its dependence on trade. The policy of minimal government interference in the
economy continues to apply equally with respect to trade in goods and services and to investment. In addition to being
an attractive market in its own right, Hong Kong remains China's largest port and the entrepôt for most of China's
value-added imports and exports, particularly goods exported by small and medium-sized enterprises.
Investment
In 2001, Hong Kong was the eighth-largest investor in Canada with $4.3 billion (stocks) in investments. Canada has
invested $4.8 billion in Hong Kong. There was a significant concentration of Canadian investments in the financial
services sector. In general, Canadian investors face few difficulties in the Hong Kong market, which features excellent
infrastructure, low taxes and high value-added direct investment.
Overview
In 2002, Canada's goods exports to the Republic of Korea totalled almost $2 billion, and imports were $4.9 billion.
Korea is Canada's third-largest market for goods exports in the Asia-Pacific region (after Japan and China), and the
eighth-largest worldwide. While considerable liberalization occurred after Korea's 1997 financial crisis, the Republic
of Korea's economic policies are typically designed to protect its domestic industry, encourage exports, and discourage
imports of some value-added goods. Generally, tariffs, import licences, import procedures and social norms all favour
the import of raw materials and industrial equipment rather than finished goods. While there has been significant
liberalization of import procedures over the past few years, significant obstacles and rigidities remain a problem in
some areas.
The Canada–Korea Special Partnership Working Group (SPWG), launched in April 1994, aims to increase cooperation in such
areas as trade, investment, industrial cooperation and technology transfer. One subcommittee of the SPWG specifically
addresses market access issues, while a second was created to further cooperation between the private sectors of both
countries, initially focusing on manufacturing technology, new materials, biotechnology, environment, energy and
telecommunications.
In 2002, Canada initiated a comprehensive strategy aimed at resolving outstanding sanitary and phytosanitary issues
through discussions among technical officials.
Market Access Results in 2002
- In July 2002, Korea permitted establishments registered with the Korean Ministry of Agriculture and Forestry to freeze
chilled imported beef and pork under certain conditions.
- In November 2002, Korean authorities approved a Canadian certificate for dry and canned pet food.
Canada's Market Access Priorities for 2003
- Continue annual monitoring of applied tariffs that are subject to possible adjustment to ensure that market access for
Canadian products is not reduced.
- Continue to press for tariff parity between competing products such as canola oil and soybean oil and feed peas and
other feed ingredients.
- Press for changes to soybean tendering procedures.
- Press for agreement on a health certificate for poultry.
- Press for agreement on phytosanitary protocols for softwood lumber, tomatoes and seed potatoes.
- Press for the necessary approvals for the sale of seal meat for human consumption in Korea.
Improving Access for Trade in Goods
Canola Oil
Canada continues to seek tariff parity between canola oil and other competing products such as soybean oil, as well
as the elimination of tariff escalation (i.e. low tariffs on raw materials and higher tariffs on processed goods).
Korea applies a tariff of 10% on crude canola oil and 30% on refined. Canola oil is the only imported edible oil that
is subject to this treatment. In comparison, Korea applies a 6% tariff on crude and refined soybean oil.
Tariffs on Feed Peas
Korea does not differentiate between dried peas for human consumption and feed peas. Korea's applied tariff for dried
peas is 28%. The tariffs for most of the competing feed products such as barley, wheat and lupins is 5%. The tariff
prevents the import of feed peas, which is detrimental to Canadian exporters and the Korean domestic feed industry.
Pulse Canada, in cooperation with a Korean feed miller, has completed feeding trials in Korea that have produced positive
results. However, Korea is still refusing to lower the tariff on feed peas to a level equivalent to that for other
competing feeds.
Soybean Tendering
The tendering system administered by Korea's Agricultural Fishery Marketing Corporation prevents Korean importers from
accessing the high-quality, premium-priced food-grade soybeans that Canada produces. Korea has a tariff rate quota for
food-grade soybeans, which is administered through international open tender, mainly on the basis of price. This is an
inflexible system that has no provision for price premiums for quality, tendering on small lots or long-term contracting.
Korea produces less than 40% of its soybean requirements and cannot currently fully supply its soy-processing sector
with the required high-quality product.
Softwood Lumber
Korea requires all Canadian softwood lumber exports to be kiln dried and heat treated in order to eliminate plant pests.
Canada is pressing Korea to accept an alternative means of reducing plant health risks that is more economically sound.
Tomatoes
British Columbia exporters would like to export tomatoes. However, Korea prohibits Canadian tomatoes based on the
presence of tobacco blue mould (TBM) in Canada. British Columbia is free of TBM and, in addition, tomatoes are not
carriers of TBM. Canada is proposing mitigating measures to eliminate any phytosanitary risk based on biological data
supplied earlier to Korea.
Seed Potatoes
Korea prohibits imports of Canadian seed potatoes due to concerns about a variety of phytosanitary diseases. Canada
has proposed risk mitigating measures, and discussions between technical officials are continuing.
Seal Meat
Korea does not list seal meat for human consumption in its Food Code. Canada has made numerous representations to
Korean authorities to have seal meat approved for human consumption. As a result of continuing pressure, in 2002 Korea
indicated that it would seek agreement from the Korean National Assembly to include seal meat in the Food Code.
Poultry
Canada continues to object to Korean animal health import requirements for poultry.
Bottled Water
Canada remains concerned about Korea's trade-restrictive, government-mandated shelf-life requirements and onerous
testing requirements for bottled water. Canada will continue to make representations in an effort to resolve these
issues.
Government Procurement
On September 1, 2001, a Canada–Korea Telecommunications Equipment Procurement Agreement was implemented. This
agreement provided Canadian suppliers with non-discriminatory access to procurements by Korea Telecom (KT), Korea's
state-owned telecommunications services provider. In 2002, the Korean government sold all its interest in KT and
petitioned Canada to remove all references to KT from the agreement. Canada is reviewing this request.
Overview
In 2002, Canadian goods exports to Chinese Taipei totalled $1.1 million. Chinese Taipei ranked fifth among Canada's
export markets in the Asia-Pacific region, accounting for 5.6% of our total exports to the region. Canada's goods imports
from Chinese Taipei in 2002 totalled $4.2 billion. Chinese Taipei's economy remains very dependent on trade. It is a major
exporter, as well as a major source of investment for the region, particularly to China and Southeast Asia, and it is
growing as an important regional importer. This has given strong impetus to trade and market liberalization, though
domestic political pressures continue to lead to protectionist measures that affect agricultural and agri-food imports.
WTO Accession
Chinese Taipei officially joined the WTO on January 1, 2002. As Chinese Taipei is a prominent export market for
Canadian suppliers, its formal membership in the international rules-based trading system is an important development.
Chinese Taipei has undertaken significant reforms and liberalization in order to bring its economic and trade regime into
line with the WTO framework. A key outcome will be the disappearance of preferential market access previously accorded to
U.S. suppliers in a number of product areas, as Chinese Taipei is now bound by the WTO principle of non-discrimination.
Chinese Taipei has begun implementing market access terms negotiated with Canada and other WTO members in both goods
and services. These include tariff elimination or reductions for so-called zero-for-zero, or tariff harmonization, goods
such as chemicals, pharmaceuticals, paper and medical devices. Chinese Taipei had already signed on to the Information
Technology Agreement (ITA), agreeing to full tariff elimination on IT products. Canadian suppliers have gained more
secure and open access for these and other industrial priorities, including plywood and aerospace products. Canadian
suppliers' access to the Chinese Taipei market for automobiles remains favourable, as Chinese Taipei proceeds with the
liberalization of its import regime in this sector.
Access has also improved for a range of agricultural, agri-food and fish and seafood products, including meat products,
grains, oilseeds and processed foods. Accession means equitable and more open access for suppliers of canola oil and beef.
The dismantling of earlier import prohibitions on products such as meat offal and several fish products, including
mackerel, sardines and herring, was begun before accession and has now been fully implemented.
In services, Chinese Taipei has included commitments in areas of prime interest to Canada, including financial services,
basic and advanced telecommunications services and professional services.
Chinese Taipei has also applied to join the WTO Agreement on Government Procurement, and has agreed to market access
concessions in the agreement for some key sectors of interest to Canada. It has also given assurances that public
tendering procedures will be fair and transparent and that a mechanism will exist for suppliers to challenge the
consistency of procurement actions with the agreement.
Market Access Results in 2002
- Access was achieved for greenhouse peppers from B.C. after Chinese Taipei declared the province to be pest-free
(or equivalent thereof) for tobacco blue mould.
Canada's Market Access Priorities for 2003
- Monitor Chinese Taipei's compliance with its WTO accession commitments, as they affect access for products of interest
to Canadian firms.
- Encourage the accession of Chinese Taipei to the WTO Agreement on Government Procurement.
- Continue technical discussions with Chinese Taipei on greenhouse tomatoes.
- Continue to press for a prescriptive building code for softwood lumber.
- Continue to press for recognition by Chinese Taipei of the equivalency of Canadian and U.S. quality control regimes
for medical devices.
- Continue to press for advance notification of any changes in Chinese Taipei's regulations affecting trade in
agricultural products.
Improving Access for Trade in Goods
Greenhouse Tomatoes
In its efforts to develop export markets, the Canadian greenhouse vegetable industry has indicated that Chinese Taipei
is a priority market. Canada is seeking access to the Chinese Taipei market for greenhouse-grown tomatoes from British
Columbia. Chinese Taipei insists on restricting imports of tomatoes, unless they can be certified as originating from an
area free from potato late blight type A-2, a disease to which tomatoes are susceptible and which is found around the
world. Canada maintains that simply certifying that the fruit is free from A-2 late blight should be sufficient. However,
following an October 2002 visit to B.C. by a Taiwanese plant health specialist, plant health specialists from both
countries agreed that a greenhouse could be considered an "area" of production and declared free from A-2 late blight.
Canada is requesting that Chinese Taipei accept this recommendation.
Consultations on Regulatory Changes in Agriculture
Canada has expressed concerns to the Board of Foreign Trade about the lack of prior consultation on changes to
regulations affecting the import of food products. For example, in 2002, a change in the application of import regulations
on live seafood (e.g. lobster) was implemented without prior notification to foreign trade offices or importers. This
change disrupted the import of highly perishable live lobsters from Canada.
Softwood Lumber
Chinese Taipei is a major market for softwood lumber, but only for the lower grades used for packaging. The market is
open to increased use of wood in construction, but the opportunity is held back by the concern of financial and insurance
institutions that the island's wood building code is insufficiently prescriptive to assure adequate quality. The Canadian
wood products industry is currently working with the Chinese Taipei government on the revision of its wood building code.
Revisions have been proposed, but the timing for implementation has yet to be set.
Overview
The Indian economy has changed dramatically since 1991, when India launched its program of economic reforms and trade
and investment liberalization. India's economic growth rate averaged 6.5% between 1993 and 2000.
The process of economic reforms continues, if somewhat hesitantly. All remaining quantitative restrictions were lifted
in April 2001. The insurance sector has been opened to private and foreign investment. More sectors (e.g. garments,
leather, toys, shoes) have been "de-reserved" from the small-scale industries. Further liberalization of capital account,
FDI and foreign institutional investment rules has been effected. Legislation to reform the bankruptcy, competition,
pension and labour regimes, among others, is being contemplated.
Total Canada–India merchandise trade for 2002 reached almost $2 billion, with a balance of $690 million in India's
favour.
FDI is allowed in all areas, except for a limited number of sensitive sectors (e.g. atomic energy, railways). FDI
ceilings and approval processes have been progressively relaxed, so that a large majority of sectors are now open to
100% foreign equity, via the automatic approval route. Ceilings on FDI remain in a diminishing number of sectors, such
as insurance (26%), defence (26%) and banking (49%), and, in certain cases, approval has to be obtained from the Foreign
Investment Promotion Board under the Ministry of Commerce and Industry. Canadian investment in India is relatively modest
compared with that of other major industrialized countries, with approved direct investment of $257 million in 1999.
Indian investment in Canada remains underreported for a variety of technical reasons. The opening of several software
development centres in Canada by major India-based IT firms points to the attractiveness of Canada as an investment
destination and has attracted additional Indian investment. The growing Canada–India bilateral trade and investment
ties have been facilitated by a number of business associations, most notably the Confederation of Indian Industry,
the Federation of Indian Chambers of Commerce and Industry, the Canada–India Business Chamber and the Indo-Canadian
Chamber of Commerce.
India constitutes a potentially significant market for almost any type of good, service or technology. An expanding
middle class, estimated at up to 300 million, is interested in new products from around the world, and offers significant
opportunities for trade and investment, particularly in areas of traditional Canadian strengths. These include telecommuni
cations, transportation, agriculture and agri-food, power equipment and engineering, infrastructure development, oil and
gas, mining and environmental technology, as well as banking, insurance and educational services.
Canada's Market Access Priorities for 2003
- Press India to respect its WTO Information Technology Agreement commitments, particularly for telecommunications
equipment.
- Ensure that restrictions on the import of bovine semen from Canada to India are eased.
- Monitor the increasing number of trade remedy actions being taken by India against Canadian imports (e.g. anti-dumping
action on specialty steel and vitamin C, safeguard case against edible oil).
- Seek tariff parity between canola oil and soybean oil, as well as prevent the application of safeguard duties on
canola oil.
- Continue to seek approval of Canada's export certificate for pork.
- Continue to assist India in reforming its telecommunications policies and regulations.
Improving Access for Trade in Goods
Agricultural and Manufactured Goods
In 2001, Canada's agri-food exports to India totalled $200.5 million, the majority of which were pulses (peas,
chickpeas and lentils). Canadian exporters are seeking improved access to the Indian market for some agricultural
products but have concerns regarding India's import requirements and tariff levels.
India maintains a negative list of imports, which encompasses prohibited, restricted and canalized items. Prohibited
items include wild animals and birds; tallow, fat or oils of animal origin; ivory; beef and beef products; and rennet.
Restricted items include firearms, certain medicines and drugs, and poppy seeds. Import permits are required for some
agricultural products such as seeds for sowing and livestock products. Canalized items are channelled through a designated
product-specific state trading enterprise. For example, the Food Corporation of India is the canalizing agency responsible
for imports of most cereals. Canada will continue to encourage the Indian government to bring its import regime into full
compliance with WTO norms.
Bovine Semen
In 1997, India banned the import of bovine semen from Canada. Following representations from Canadian officials,
India announced in 2001 that it would lift the ban. However, imports have not resumed as no import permits have been
issued by the Indian government. Canada will continue to press India for a final resolution of the issue.
Canola Oil
India applies a tariff of 45% on soybean oil and 85% on canola oil. Canada is seeking improved market access for canola
oil to increase its competitiveness vis-à-vis soybean oil. Canada is also seeking to prevent the application of safeguard
duties on canola oil in the context of India's ongoing safeguard investigation on all edible vegetable oils.
Pork
India does not accept Canada's export certificate for pork, because the Canadian certificate does not cover some
diseases that India requires to be reported. Canada views India's requirements as overly stringent since Canada currently
exports pork to over 100 countries.
Investment
Extensive reforms were introduced in India in 1991 to liberalize foreign investment and simplify the approval process.
Prior to that time, companies could enter India only if they brought technology with them. Although investors still face
certain restrictions, the number of sectors that do not require approvals, or for which approval limits have been raised,
has been growing rapidly in recent years. Annual FDI inflows into India have increased dramatically from less than US$100
million in 1991 to more than US$2.3 billion in 2001. Canadian direct investment in India is still modest, but the flow
increased to $18 million in 2001 from $2.4 million in 1991.
Overview
Australian imports from Canada totalled $1.1 billion in 2002, while Canadian imports from Australia amounted to $1.7
billion, for a two-way total of $2.8 billion. In 2001, Canadian direct investment in Australia amounted to $3.4 billion
and foreign direct investment in Canada from Australia was $1.6 billion. Canadian sales successes in Australia continue
to be oriented toward fully manufactured goods, including aircraft and automobile parts. Pork and lumber are also among
the major Canadian exports to Australia.
There are natural affinities between Canada and Australia arising from similar legal and regulatory systems, comparable
federal structures and a trading relationship reaching back over 100 years. Most trade between the two countries takes
place at most-favoured-nation rates, although a substantial amount benefits from duty-free rates.
Some important non-tariff measures have an impact on market access. Other measures affecting access for Canadian goods
and services include product standards, government procurement practices (which vary from sector to sector, and from
Commonwealth to state levels) and trade-remedy laws (Australia is among the most active users of anti-dumping and
countervailing duty statutes).
Canada's Market Access Priorities for 2003
- Continue to press for removal of the Australian ban on imports of pork products.
- Continue to work with Australia to ensure that softwood lumber regulations do not restrict Canadian lumber exports.
Improving Access for Trade in Goods
Pork
For several years, Australia has maintained requirements preventing the import of unprocessed pork products from Canada
and other countries due to alleged animal health concerns. The measure requires that imported pork must either be cooked
in the exporting country or in a transitional facility in Australia. These measures raise the cost of Canadian pork and
exclude Canadian exporters from direct access to Australia's retail market. Australia justifies the measures on the basis
of the presence of porcine respiratory and reproductive syndrome (PRRS). Canada has long sought the removal of these
restrictions, which are based, in Canada's view, on unsubstantiated health and safety claims.
In May 1998, Australian authorities proposed a generic Import Risk Analysis (IRA) on imported pork and sought public
comment. In January 2001, Biosecurity Australia published an issues paper upon which Canada provided comments, including
on the PRRS issue. It is anticipated that the draft IRA will be circulated for comment in 2003.
Softwood Lumber
In June 1999, Australia undertook an import risk assessment to assess the quarantine risk associated with imports of
coniferous sawn lumber and log imports from Canada, New Zealand and the United States. This will determine future import
conditions on timber imported from these countries. It is anticipated that Australia, in its final assessment, is likely
to recommend the implementation of phytosanitary treatments for products prior to export. This is likely to involve kiln
drying, heat treatment and/or application of insecticides. Canadian scientists have been closely involved with Australian
authorities at all stages of the IRA to ensure that the treatment of lumber does not become a serious threat to a trade
that has been ongoing for more than a century. Annual Canadian coniferous lumber exports to Australia have averaged $87
million over the past decade.
Overview
In 2002, Canada exported $208 million in goods to New Zealand and imported $555 million in return. In 2002, Canada's
leading exports to New Zealand were fertilizer, frozen pork and lumber. Canada was New Zealand's largest foreign supplier
of each of these products. In the same period, Canada's leading imports from New Zealand were fresh, chilled and frozen
beef and lamb meat. Total Canadian foreign direct investment in New Zealand was $1.5 billion in 1999.
Canada's Market Access Priorities for 2003
- Canada will continue to make representations pressing for the removal of New Zealand's restrictions on pork, trout and
salmon.
Improving Access for Trade in Goods
Pork
Effective September 1, 2001, New Zealand imposed new requirements suspending the import of unprocessed pork products
from Canada and other countries due to alleged animal health concerns—porcine respiratory and reproductive syndrome. The
new measure requires that imported pork must be either cooked in the exporting country or in a transitional facility in
New Zealand, similar to Australian restrictions imposed for several years upon unprocessed pork from Canada. According to
New Zealand import data, in the year ending October 2002, Canadian exports declined 21% over the previous year.
Canada's position is that the measures are scientifically unjustified. We have been pursuing the issue at the technical
level. In February 2002, the Canadian Food Inspection Agency agreed to conduct more scientific research on PRRS. This is
expected to be completed later this year.
Canada made high-level representations objecting to New Zealand's requirements on the grounds that these are more
trade-restrictive than necessary and not based on science. Canada is working with New Zealand technical authorities to
find the earliest possible, mutually acceptable solution.
Trout
In December 1998, New Zealand imposed a "temporary" ban on the import of trout. Since then, the ban has been extended
several times. In October 2001, New Zealand announced the replacement of the existing Customs Import (Trout) Prohibition
Order 1998 with an entirely new one, which will be in force through November 7, 2004. New Zealand claims that the ban is
for conservation reasons. Canada's position is that New Zealand has provided no scientific information to justify the ban
on conservation or any other grounds, and that it is inconsistent with New Zealand's international trade obligations.
Canada would like New Zealand to remove the ban.
Salmon
In 1995, New Zealand approved the import of headless, gutted, wild, ocean-caught Pacific salmon products from Canada,
based on the conclusion of a 1994 risk analysis document. However, New Zealand maintains a number of sanitary-related
post-entry restrictions that discourage imports from Canada, including a requirement that imported salmon and char, in
bulk form, be processed in plants that are not certified for export. These restrictions effectively prevent Canada from
exporting salmon in bulk for further processing in New Zealand. Indeed, there are currently no New Zealand plants able
to process Canadian salmon. Canada is working at the technical level to address outstanding fish health concerns.
Overview
With one of the world's most open economies, Singapore already presents few barriers to Canadian exports, the most
notable exceptions being alcohol and tobacco. The same open policy also extends to immigration as the Singapore government
actively encourages foreign talent to live and work in the city state. Singapore is therefore a popular Southeast Asian
destination for Canadian businesses and individuals.
Singapore continues to offer significant opportunities for Canadian exports of goods, services and technology. In 2002,
Canadian exports of goods to Singapore were $513 million, and imports from Singapore were $988 million, while trade in
services between the two countries for the year 2000 was $829 million. Already the region's premier transportation hub,
Singapore is investing heavily to position itself as a Southeast Asian hub for information and communications technology,
financial services, life sciences and cultural industries. To support the development of these knowledge-based industries,
Singapore in 2001 converted the Intellectual Property Office of Singapore into a statutory board under the Ministry of Law.
In 2002, Canada and Singapore commenced negotiations toward a bilateral free trade agreement. The Canada–Singapore Free
Trade Agreement, when complete, will improve the ability of Canadian firms to export to and invest in Singapore in those
areas still subject to protection.
Market Access Results in 2002
- Completed three full rounds of negotiations toward a bilateral free trade agreement.
Canada's Market Access Priorities for 2003
- Continue negotiations toward a Canada–Singapore Free Trade Agreement in order to remove remaining barriers to trade in
goods and improve overall access for Canadian investment and services in sectors such as financial and professional
services.
- Continue to monitor the development of intellectual property legislation and enforcement efforts in Singapore for
patents, trademarks and copyrights.
- Continue to encourage discussions on outstanding matters with a view to concluding an Air Transport Agreement,
following consultations between the respective airlines or completion of Canada's air policy review.
Investment
While inward FDI to Canada from Singapore remained stable at $132 million in 2001, Canadian direct investment in
Singapore jumped sharply to $4.52 billion from $3.0 billion and $3.2 billion in 1999 and 2000 respectively. While most
of the Canadian direct investment in Singapore is in the form of regional offices in services sectors such as banking
and insurance, Canadian firms in the environmental technology, aircraft maintenance, manufacturing and retail sectors
also have a presence.
The Singapore government is extremely active in investing in key technology sectors, in part through the creation of
several investment funds administered through government statutory boards such as the Agency for Science, Technology and
Research and the Singapore Economic Development Board. Most of these funds are geared toward attracting foreign
corporations and expertise to Singapore to help develop strategic growth areas, such as life sciences and ICT.
Overview
In 2002, the Indonesian economy grew an estimated 3.6%, driven primarily by government spending and domestic private
consumption. However, there is growing concern that the boom in consumption that is driving GDP growth is falling off.
In addition, a continuing dearth of investment, particularly after the bombing in Bali, could affect economic growth in
2003.
Indonesia remains Canada's largest export market in Southeast Asia. Commodities are still the top export to Indonesia,
making up 65% of total exports. However, electronics and prepared foods are two areas in which Canadian firms are making
inroads. As long as the consumption boom continues, there will be opportunities for Canadian-made consumer goods.
On the fiscal and monetary policy fronts, Indonesia is performing well. In recognition of this fact, several
international rating agencies upgraded Indonesia's sovereign ratings in August and September 2002. Inflation in the
Consumer Price Index fell from 11.5% in 2001 to 11.9% in 2002. Indonesia's fiscal year 2002 budget implementation
remained on track throughout 2002, with the full year deficit equivalent to 2.6% of GDP. In August 2002, the government
unveiled a conservative US$40.7 billion draft budget for fiscal year 2003 that forecasts a deficit equivalent to 1.3% of
the 2002 GDP, though post-Bali revisions have moved that to between 1.6% and 2.0%. Major announced increases in fuel and
electricity prices (which significantly reduce the fuel subsidy, still a large part of the national expenditure budget)
will assist in keeping that deficit to a minimum.
Market Access Results in 2002
- The tariff for processed Canola oil was confirmed at zero after the Customs Service attempted to impose a 10% tariff
that would have made competition with other competing edible oils more difficult.
- Canadian Food Inspection Agency certification for fish products was accepted, enabling improved access to Indonesian
markets.
- The "check price" on which tariffs are assessed for Canadian apples was reduced to match that for competing
U.S.-source products.
- Equal certification measures were obtained for Canadian meat bonemeal that allow access on par with Australia,
New Zealand and the United States, the only other approved source countries.
Canada's Market Access Priorities for 2003
- Ensure that Indonesia does not impose increased tariffs on soybeans and other agricultural products.
- Continue to ensure that Indonesia's check price system does not disadvantage Canadian exporters.
- Monitor Indonesia's intention with respect to implementing a product labelling system and provide timely advice to
Canadian exporters.
- Press for reform of Indonesia's corporate bankruptcy laws to require ministerial approval for bankruptcy declarations
against all financial institutions.
- Lobby the Indonesian government to establish clear interconnect regulations in the telecommunications industry. The
lack of transparent regulation has slowed growth, impeding Canadian telecom exporters' access to the market.
Investment
With a population of over 220 million people, Indonesia offers a large and growing domestic market and a large
workforce, diverse and abundant natural resources, reasonably modern telecommunications and other infrastructure, and a
strategic location along some of the world's major trade routes. If Indonesia continues to move toward implementing a
sound policy framework and continues a strong commitment to reform, it should be able to take advantage of its fundamental
economic strengths to restore investor confidence.
Unfortunately, investor confidence has remained depressed compared with levels in the 1990s, for a number of reasons.
One reason may be excesses of capacity in certain sectors due to overly optimistic growth projections in the past. Another
reason is that many existing domestic investors are prevented, by their ongoing debt-restructuring activities, from being
able to consider much new investment. A third reason may be the general global downturn in FDI activities following
recent stock market retrenchments and concerns about recessions in many countries. In addition to these factors,
existing and potential investors cite concerns that include political uncertainty, unclear decentralization, uneven
implementation of economic reforms, an unreliable judicial system, security issues and the treatment of existing
investors.
Events in 2002, including the highly suspect (and ultimately overturned) bankruptcy declaration of a solvent
Canadian-based insurance firm, continued to erode investor confidence in Indonesia. Furthermore, the foreign investment
community has yet to see the government take strong actions to improve the investment climate and legal regime. One such
action that is eagerly anticipated is reform of the corporate bankruptcy legislation. Such reform should offer the same
level of protection for insurance companies as that currently given to banks, which require approval from the Minister
of Finance to be declared bankrupt.
While total recorded Canadian direct investment exceeds $2.2 billion, the flow of any new large-scale Canadian direct
investment has dried up due to continued uncertainties about the future political and economic climate in Indonesia.
A number of Canadian resource companies had been actively planning major new investments in the mining and petroleum
sectors, but decisions to proceed with these investments are awaiting clarity on the political, economic and regulatory
climate. The Embassy continues to monitor developments and make representations on behalf of specific companies.
New small and medium-sized Canadian investments, which are more immune to political uncertainties, have continued, but
at a slower pace than in the late 1990s. Within these new investments, there has also been a shift from manufacturing for
the domestic market to manufacturing for export markets as a result of lower production costs.
Canadian investors continue to face numerous challenges in accessing the Indonesian market, including a complex and
non-transparent legal system that does not provide an efficient or effective recourse for addressing commercial disputes.
Indonesia's political bodies are making some effort to reform the judicial system, but the reform is extremely slow.
Businesses also continue to face time-consuming procedures in obtaining approvals for licences and permits required to
implement their investment plans, though the process has improved somewhat. A limited number of sectors are closed to
foreign direct investment, including freshwater fishing, forestry, public transportation, broadcasting, film making,
telecommunications, onshore drilling services and medical clinics.
The new law on regional autonomy, implemented in January 2001, is a bold attempt by the Indonesian government to
decentralize all aspects of the economy except monetary, defence, foreign policy and judicial matters. Because both
the regional and central governments seek to control the process of investment approvals, some confusion exists.
Overall, however, most companies report that regional autonomy has not significantly complicated the course of doing
business in Indonesia. Most of Canada's non-resource–based investments are located on the island of Java, where the
largest domestic markets exist and where regional autonomy has not been as pressing an issue as it has been for the
other islands.
The Canadian government has long supported investment in Indonesia by placing advisors inside the Investment
Coordinating Board and other locations under the auspices of the Canada–Indonesia Business Development Office (CIBDO).
Several tens of millions of dollars of new investments are currently under consideration by Canadian firms, with CIBDO's
assistance, largely in the manufacturing and domestic services sectors. Canadian investment is expected to increase
further once broader stability returns to the country and obstacles to investment security are removed.
Overview
Following an economic contraction of over 9% in 1998 during the Asian crisis, the Thai economy is now largely back on
track. In June 2000, Thailand officially graduated from its International Monetary Fund program and began to make its IMF
loan repayments in November of that year. In 2002, Thailand registered GDP growth of 4.9%, spurred on by domestic private
consumption and government spending. Although Thailand still faces challenges, notably related to the precarious
situation of its financial sector, its prospects remain very positive, particularly with additional reform legislation.
Thailand is Canada's second-largest trading partner in Southeast Asia. While trade between Canada and Thailand
diminished during the economic crisis, in the past few years Canadian exports have recovered strongly and the prospects
for continued growth are good. In fact, Canadian exports to Thailand grew 73% between 1999 and 2002. In 2002, Canadian
exports to Thailand reached $522 million. Moreover, buoyed by the devaluation of the Thai baht, Thai exports to Canada
reached a record high of $1.8 billion last year. Canadian investment in Thailand also continues to grow and reached $1
billion in 2001.
Market Access Results in 2002
- Import tariffs on fibre-optic cable have been waived.
- Import tariffs on parts for producing colour televisions have been waived.
- The Thai government is reviewing tariffs on raw materials used in the production of electronic appliances and
electronics.
- Tariff reductions for the textile and chemical industries are being finalized.
- The Thai government released tax incentives for foreign investors establishing their regional operating headquarters
in Thailand.
Canada's Market Access Priorities for 2003
- Seek a reduction in the tariff on feed peas to a level comparable to that for other feed ingredients.
- Seek to address the 49% limit on foreign equity investment in joint ventures.
Overview
Canada's exports to Vietnam in 2002 totalled $69 million (up 18% from 2001). These numbers are quite modest considering
that Vietnam's overall imports are approximately US$17.5 billion. Vietnam is absorbing increasing levels of debt
associated with infrastructure development; however, the IMF is satisfied that the fundamental economic indicators are
sound. Vietnam is also dependent on large amounts of aid (US$2.4 billion in 2002).
Economic reform has become a top priority. To this end, Vietnam is making an effort to play a greater role in the
international trading system. It is aggressively pursuing membership in the WTO and has set 2005 as a target date for
accession. Vietnam tabled its initial market access offers on goods and services in January 2002, and accession
negotiations are expected to intensify. Vietnam's eventual membership in the WTO will consolidate its economic reforms
and yield a more open, stable and predictable environment for Canadian traders and investors. Canada supports Vietnam's
efforts to accede, including through the provision of accession-related technical assistance. Canada is also co-sponsoring
the APEC Economic Integration Program, which aims to help six Southeast Asian developing economies (including Vietnam)
strengthen their trade facilitation and negotiating capacities.
Vietnam recognizes that attracting foreign investment is key to expanding economic opportunities and is trying to
reform its legal and judicial systems to create a more welcoming environment for FDI. Despite urging by foreign donors,
including Canada, to accelerate the equitization (purchase of shares by employees) of state-owned enterprises and
dismantle competitive barriers against private sector companies, progress by the government has been slow.
Market Access Results in 2002
- A memorandum of understanding, signed by the Canadian Food Inspection Agency and Vietnam's Department of Animal
Health, that included health certification agreements for a variety of livestock and livestock products. Recently,
Vietnam recognized Canada's BSE-free status.
- The government continues to implement key reforms, including in the financial sector and with respect to private
sector development. Canadian businesses will benefit from improved commercial conditions, although Vietnam will remain
far less developed than the regional average.
- The continued commitment of the Vietnamese government to WTO accession by 2005.
Canada's Market Access Priorities for 2003
- Identify and secure improved treatment for Canada's goods and services in bilateral negotiations with Vietnam.
Support multilateral efforts at the WTO for Vietnam to develop a consistent, transparent and effective trade policy regime.
- Continue to play a positive role, through bilateral programs and in forums such as APEC, in developing a
capacity-building program for trade and economic policy.
- Solidify access for Canada's agriculture and agri-food products through continued negotiation of bilateral,
sanitary- and phytosanitary-related arrangements when appropriate.
- Ensure that Canada's right to most-favoured-nation treatment on goods is protected vis-à-vis Vietnam's other trading
partners.
- Advocate the specific interests of Canadian companies in the market. In particular, try to ensure that proposed
changes to Vietnam's Mineral Law correspond to the needs of the Canadian mining industry.
Overview
Malaysia is Canada's largest trading partner in Southeast Asia. In 2002, Canada exported goods totalling $477 million
to Malaysia, and imported goods valued at $2 billion. While we have a significant trade deficit in goods with Malaysia,
trade in services is far more balanced. In 2000, two-way trade in services totalled $249 million, with Canada registering
a $37 million surplus. Overall trade is expected to continue to grow in 2003, as the Malaysian economy continues to
recover, and the government initiates another expansionary budget.
Malaysia, like many members of the Association of South-East Asian Nations (ASEAN), has recently expressed increased
interest in bilateral and regional trade agreements, although it continues to protect its automotive industry. Malaysia
has a relatively open, market-oriented economy, and Canadian exporters have not reported any major market access barriers.
Export Development Canada has identified, however, that "politics" does play a role in the economy. The transparency of
the decision-making process for projects involving the government requires that Canadian exporters appoint strong local
representatives. The Malaysian government allows 100% foreign equity in investments in most sectors. However, a notable
exception is the oil and gas sector, where joint ventures with Petronas are the norm.
Market Access Results in 2002
- Malaysia's decision to keep the ringgit pegged to the U.S. dollar for the time being gives Canadian products a
price advantage in the Malaysian market.
- Malaysia's high-profile campaign against piracy of software and movies gathered momentum in 2002 with many
well-publicized raids on offenders. Nevertheless, Malaysia remains one of Asia's three main hubs for pirated software
and movies.
Canada's Market Access Priorities for 2003
- Monitor intellectual property legislation and enforcement.
- Pursue further trade liberalization for goods and services in the context of WTO negotiations, especially in the
banking sector, which holds potential for Canadian companies.
- Continue to press for further progress in corporate governance and judicial reform, the lack of which acts as a
non-tariff barrier to Canadian trade and investment.
- Monitor Malaysia's decision to extend tariff protection for its automobile industry until 2005. The Malaysian
approach limits joint-venture and market opportunities for Canadian parts manufacturers.
Overview
The Philippine economy demonstrated remarkable resilience to external developments in 2002. It was competitive with
all other Southeast Asian countries in 2002 with GDP growth of 4.6%. Inflation is down and the peso is stable.
The positive performance is due to increased political stability and to President Macapagal-Arroyo's sound and
determined approach to the country's economic policy. The government's policy stresses fiscal responsibility, free
enterprise, a modernized agricultural sector, a social bias toward the disadvantaged and a raising of the moral standards
of government and society. Also contributing to positive performance in 2002 was the stabilizing effect of remittances
from the estimated eight million overseas Filipino workers. Although there are still concerns over reforms, transparency
and the 2002 deficit, the country's economic situation today is markedly better than under the Estrada Administration.
The Philippine government is committed to eliminating the budget deficit by 2006, but it is now clear that targets for
this year will not be met due to poorer-than-expected revenue collection.
Market Access Results in 2002
- The Philippines suspended Administrative Order 25 (AO-25), which would have imposed onerous requirements for
third-party independent inspections in the country of origin of all meat exported to the Philippines. However, elements
of AO-25 were re-introduced in a different manner (see Memorandum Order 7 below).
- Canadian advocacy of socially and environmentally responsible mining prompted the World Bank's private sector lending
arm, the International Finance Corporation, to commit to holding a national policy dialogue on responsible mining in 2003.
This should in turn contribute to a friendlier and more predictable investment climate.
- Canada pressed for due process on a number of specific investment projects.
Canada's Market Access Priorities for 2003
- Press for the withdrawal of Memorandum Order 7, which will impose duplicative and unnecessary certification
requirements for all Canadian meat, milk and their products exported to the Philippines.
- Continue to advocate the benefits of a socially and environmentally responsible mining industry.
- Monitor and assess the investment climate for transparency and due process.
Improving Access for Trade in Goods and Services
Memorandum Order 7—Meat, Milk and Their Products
In July 2002, the Philippines approved Memorandum Order 7, which requires each plant wishing to export meat, milk
or their products to the Philippines to submit to a verification, by an independent inspector chosen by the Philippine
government, of its compliance with Philippine HACCP (Hazard Analysis and Critical Control Points) standards. The
verification inspection must be re-done every three months for each plant at the exporter's expense. The inspection
requirements for imports of milk and its products have been delayed to January 1, 2004. The auditing requirements for
meat and its products were to have come into effect on January 1, 2003, but have since been delayed to April 1, 2003.
Canada continues to object strongly. The new requirements are unnecessarily onerous. Canada is pressing Philippine
authorities to accept Canadian Food Inspection Agency attestation that Canadian plants are HACCP-compliant.
Investment
In 1998, Canadian direct investment in the Philippines was $370 million. The largest Canadian investors in the
Philippines are Sun Life and Manulife.
Canadian investors face some challenges in the Philippine market. This is particularly so in the mining sector, where
Canadian companies have experienced setbacks due to unpredictable and non-transparent decision making on mineral
production sharing agreements, where permitting can be slow and unpredictable, and where the national government's
administrative and implementation capacity in the regions is limited.
Government decision making on build-operate-transfer (BOT) and private sector participation projects has also proven
less than fully predictable, with (in particular) the law and regulations on unsolicited BOTs subject to differing
interpretations.
Overview
Cambodia has a relatively open, market-oriented economy. Government reforms are ongoing, and Canadian exporters have
not faced major market access barriers. Cambodia's period of economic growth continued in 2002, with gains in the garment
and tourism sectors. Local partners are key to doing business successfully in Cambodia, since informal barriers to trade
do exist. In 2002, Canadian exports to Cambodia totalled $1.6 million, and imports from Cambodia reached $20.8 million.
Cambodia's accession to the WTO is progressing well. Cambodia and WTO members hope to complete the accession
negotiations in 2003, making Cambodia the first least-developed country to join the WTO since its creation in 1995.
Canada supports Cambodia's efforts to accede, including through the provision of accession-related technical assistance.
Canada is also co-sponsoring the APEC Economic Integration Program, which aims to help six Southeast Asian developing
economies (including Cambodia) strengthen their trade facilitation and negotiation capacities. In addition, the Cambodian
government has developed a Pro-Poor Trade Policy Strategy, as one of three pilot countries under the integrated framework,
which consists of the six core agencies (IMF, U.S. International Trade Commission, UN Conference on Trade and Development,
UN Development Programme, World Bank and the WTO).
Market Access Results in 2002
- Canadian environmental and consulting services companies established offices in Cambodia.
- A Canadian company invested in a waste management operator, while others are pursuing projects funded by international
financial institutions (IFIs).
- A Canadian power company expanded a US$4-million investment project in Cambodia.
Canada's Market Access Priorities for 2003
- Advocate the interests of Canadian companies in the market, particularly in the ICT and environmental sectors.
- Advocate the interests of Canadian companies with respect to IFI-funded projects.
- Continue to press for progress in corporate governance and judicial reform, which act as non-tariff barriers
to Canadian trade and investment.
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