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CHAPTER 9:
TRADE IN MERCHANDISE GOODS: MARKET ACCESS, TARIFFS AND NON-TARIFF BARRIERS
We support the greatest possible degree of tariff reduction or elimination;
the reduction or removal of the maximum number of non-tariff barriers;
the most efficient possible administration of customs and border controls;
and the highest possible degree of fairness and transparency in procurement
and other administrative processes. In our view, such measures will create
huge new opportunities for us and for other Canadian companies. [Robert
Weese, 31:1635]
Market Access
Globalization by definition means that national boundaries are no longer
the impediments they once were, at least for conducting business and in
transacting for most goods and services. In the hopes of reaping the benefits
of globalization, governments across the world have agreed multilaterally,
regionally and bilaterally to liberalize their markets. Domestic policies
everywhere are, therefore, undergoing tremendous scrutiny to ensure that
all signatories to these agreements are living up to their market access
commitments. Indeed, the next decade will likely uncover and expose numerous
inconsistencies between domestic industrial policies and trade commitments
which will undoubtedly prove to be contentious in their resolution.
While market access issues may not be as intellectually appealing as
the new issues on the trade agenda (i.e. competition policy, intellectual
property and investment), they nevertheless form the backbone of the international
trading system - as they no doubt will in the Americas. The Free Trade
Area of the Americas (FTAA) agreement, if it comes to fruition, will be
a preferential agreement, whereby the industrial tariff imposed on virtually
all products originating elsewhere in the Americas will eventually be zero.
The issues that will dominate this aspect of the negotiations will be the
starting point of a country's tariff schedule and the length of time it
takes to get this schedule down to target zero. Technical barriers to trade,
such as voluntary product standards, which are often based on domestic
or local customs, will obviously have to be made to better align themselves
on an international basis, and domestic regulations across the hemisphere
will also eventually have to conform to international standards.
At this point it would be informative to measure the market access implications
of an FTAA. Figure 9.1 provides us a starting point (however crude). The
stacked-bar diagram suggests that, for most countries negotiating the FTAA,
imports from the Americas represent between 60-80% of their total imports;
only the United States, Panama and Chile do not rely extensively on imports
from countries of the Americas. The first bar in this stacked-bar diagram
represents the imports from countries that are free trade or customs union
partners. These imports enter the country almost unobstructed by any trade
barrier today, or will soon do so under terms of existing trade agreements.
The second bar of the diagram represents the imports from others that would
be party to the FTAA (some of this trade might also face little obstruction).
As such, the larger the first bar relative to the second means that the
extension of unfettered market access by way of an FTAA agreement would
have relatively little consequence in terms of lost tariff revenue and
possibly in terms of any increase in the intensity of foreign competition
that the domestic industry would face. The converse is also true.
Figure 9.1 reveals that the extension of free trade privileges throughout
the Americas will, in general terms, have relatively little impact on Canada,
Mexico, the United States and Chile. Their free trade partners already
make up the bulk of imports into their country. The rest of the Americas,
by contrast, will have to make significant adjustments, particularly CARICOM
and Central American countries which rely extensively on imports from others
in the hemisphere that are not their free trade partners. It is fair, then,
to expect that the current unbalanced market access situation across the
Americas will provide for difficult negotiations.
Market access issues are the subject of the next sections of this Chapter
and they traditionally cover topics like tariffs and non-tariff barriers
for all merchandise goods, where these latter barriers revolve around issues
such as: customs procedures, including customs valuation, rules of origin
and other border measures; standards and technical barriers to trade, not
the least of which include sanitary and phytosanitary measures, but also
voluntary product standards and regulations; anti-dumping; subsidies and
countervail; and safeguards. The Committee, however, will limit this discussion
to all merchandise goods other than agricultural goods, where market access
issues relating to the latter category of goods are deferred to the next
chapter. Sanitary and phytosanitary measures will, therefore, be covered
there as well. Since Chapter 4 dealt with trade facilitation issues, including
customs procedures, border measures will also secure, in this chapter at
least, a carve-out status.
Tariffs
Tariffs will obviously be a significant element of the negotiations
on market access, possibly the most important in terms of liberalizing
trade in the Americas. To do justice to this issue though, one must really
put the tariff in its proper historical context. The tariff was originally
devised as a means of raising government revenue. It has always and everywhere
been a huge success because, as a hidden tax on an unorganized group such
as consumers with positive competitiveness impacts on selective domestic
competitors in the home market, it aroused little, if any, domestic public
opposition. Needless to say, very little attention was paid to its implications
for economic growth; which are not favourable. Nowhere is this situation
more apparent than in the Caribbean, where tariffs are the principal source
of government revenue and the economy is an industrial laggard. In the
case of Latin America, however, the tariff was also seen as a means of
fostering foreign direct investment (FDI) under their import-substitution
strategies. Little did they know then that trade and FDI are often complementary
and that tariffs may only serve to limit their prospects for acquiring
FDI in the longer term. They know different today (see Chapter 13 and Appendix
2).
The economic benefits of trade liberalization are diffuse and pervasive,
and, once realized by the developed countries of the world, they have banded
together in ever-increasing number to substantially reduced tariffs multilaterally
over the past three decades, particularly in the last decade. For instance,
Canada's weighted-average tariff has declined from just over 4% in 1987
to just a little more than 1% in 1997. In the same period, the weighted-average
tariff on dutiable imports declined from 11.28% to 5.03%. As of January
1, 1998, Canada and the United States have eliminated all industrial tariffs
as per the North American Free Trade Agreement (NAFTA). Pursuant to the
NAFTA, Canada and Mexico will eliminate virtually all tariffs imposed on
each other by 2003. By this same time, Canada and Chile will have eliminated
all industrial tariffs imposed on each other according to the Canada-Chile
Free Trade Agreement.
Relative to most of the Americas, Canada has been very aggressive in
its liberalization efforts. Indeed, the Minister of International Trade
was quick to mention the asymmetric tariff situation in the Americas.
It should be noted that our exporters still face relatively high tariff
barriers in the region, and that's why a liberalized trade regime would
be of benefit. For instance, in the automotive sector we face 70% common
MERCOSUR tariffs; in machinery, 20% to 25% tariffs in key South American
markets; in paper, it's 12% to 16% in the MERCOSUR economies; and plastic
goods look at a 14% to 18% range in our key markets. The FTA would bring
down those walls for us, because the walls are already broken down the
other way. Countries of the Americas and the Caribbean already face low
tariffs in Canada, with many qualifying for a general preferential tariff
or other preferential tariff treatment. [Hon. Sergio Marchi, 24:1535]
The Canadian Pulp and Paper Association had something to add on the
strategic nature of the tariff rate structure in Latin America, as well
as its economic impact on Canada's forestry sector.
[T]ariffs in Latin America remain very high. In some countries, duties
are in the double digits and can add as much as $50 per tonne to the cost
of Canadian shipments. Most of these duties are applied to valued-added
paper grades, which leads to tariff escalation, a problem that denies Canadian
producers the opportunity to realize optimal economic returns from their
paper resources. [Joel Neuheimer, 30:1615]
The Committee would like to reiterate its approval of the single undertaking
nature of an eventual FTAA agreement as this feature should lead to greater
success in realizing the end game objective of zero industrial tariffs
imposed on all trade within the Americas. There are, therefore, two remaining
issues: (1) the starting point or base-year tariff schedule; and (2) the
pace of tariff elimination or tariff phase-out period.
In terms of the first issue, the Committee is of the view that to provide
"real" tariff reductions the base year should precede the date
that formal negotiations begin. This choice would help mitigate against
strategic manipulations to gain more breathing space between today's tariff
schedule and target zero. The Committee therefore recommends:
15. That the Government of Canada establish an appropriate base year
upon which to commence reductions on all industrial product tariffs for
each signatory of the Free Trade Area of the Americas agreement and that
this date maximize Canadian interests.
The Committee was advised by many to follow the example of the NAFTA
in determining the length of the tariff phase-out period. The Committee
notes one such appeal in particular:
[T]he free trade agreement negotiations [should] pursue a similar path
of phasing out of tariffs, as was established under the free trade agreement
with the United States and under the North American Free Trade Agreement,
with the process for accelerated tariff reductions and zero-for-zero tariff
reductions for the FTAA signatories over an established and reasonable
period of time, much as both of those previously mentioned agreements allowed
for some flexibility - within a 10-year timeframe - for moving to zero
tariff rates. [Gordon Peeling, 30:1610]
The Committee has also been made aware that the maximum 10-year timeframe
has been made somewhat of a precedent at the World Trade Organization (WTO)
and we, therefore, recommend:
16. That the Government of Canada seek a maximum 10-year timeframe
in which to phase out all tariffs imposed on all industrial products originating
in Free Trade Area of the Americas signatory countries and that it show
the flexibility necessary to obtain accelerated tariff reductions whenever
possible.
Anti-Dumping Measures
Anti-dumping measures are one form of a non-tariff barrier to trade
that, when carried out according to a well-defined set of rules approved
by the WTO, is permitted. In general terms, the dumping of products is
said to occur when exporters sell their products in foreign markets at
prices lower than the price charged in the home market (referred to as
its "normal value") or at prices below the cost of production.
WTO rules, as set out in the WTO Anti-Dumping Agreement, permit countries
to impose anti-dumping duties equivalent to the margin of dumping if it
is found through a process of investigation that these imported products
are causing, or threatening to cause, material injury to domestic producers
of the same product. The NAFTA affirms the existing rights and obligations
as set out in the WTO agreement.
The WTO Anti-Dumping Agreement applies to the all WTO members and virtually
all countries that are negotiating the FTAA have or will soon have anti-dumping
laws on their books that are consistent with the WTO agreement. Furthermore,
in the case of some customs union agreements, an anti-dumping action taken
in one country could have extraterritorial application across the customs
union region. With regards to Canada, it was in fact the first country
in the world to promulgate anti-dumping legislation dating back to 1904.
Today, however, the Special Import Measures Act of 1984
governs the use of anti-dumping measures. Finance Canada is responsible
for the legislation and policy formulation, while Revenue Canada and the
Canadian International Trade Tribunal are jointly responsible for conducting
the investigations.
In terms of the Americas, there are a number of frequent users of anti-dumping
measures; their incidence has increased significantly in the past few years.
The countries and the number of investigations they have undertaken in
the past 10 years are provided by the WTO Secretariat: the United States
(391), Canada (188), Mexico (188), Argentina (123), Brazil (97), Peru (14),
Venezuela (12), Chile (9), Costa Rica (5) and Guatemala (1).
The Committee was provided a few comments on the current state of affairs
of anti-dumping. They were largely directed at one of two broad issues.
The first issue dealt with the potential for merging anti-dumping provisions
with that of predatory pricing provisions of competition policy; the Committee
defers this discussion to Chapter 15. The second issue dealt with the increased
application of anti-dumping measures of late as an apparent substitute
for the Uruguay Round reductions in tariff and other non-tariff trade barriers.
The main thrust of the arguments advanced was to seek additional ways of
stemming the flow of these protectionist actions, but no concrete or specific
recommendation was ventured.
Minister Marchi has made it clear that he sees curbing the abuse of
anti-dumping, countervailing duties, and safeguard actions as a priority
in future WTO negotiations. One of the reasons he wants to do that is because
of the proliferation of these types of actions. It's widely seen that these
actions are merely a new form of protectionism. They've replaced the old
system of tariffs and are actually very costly to the world trading system.
[Eugene Beaulieu, 125:855-900]
The Committee is of the opinion that, since it is the United States
and the European Union that are the most likely to resort to anti-dumping
measures of particular concern to Canada, we would best achieve our goals
at a broader forum than is found at the FTAA negotiating table. The Committee
recommends:
17. That the Government of Canada aggressively pursue refinements
in the procedures of anti-dumping measures at the multilateral level with
the view to improving them.
Subsidies and Countervail Measures
Disciplines on the use of subsidies are covered by the WTO Agreement
on Subsidies and Countervail Measures (ASCMs). The ASCMs has two main objectives:
(1) it disciplines governments in their use of subsidies in order to limit
their distortionary impact on international trade; and (2) it establishes
the rules governing a country's unilateral imposition of a special form
of duty known as a countervail measure to offset the injury inflicted on
the domestic industry by the importation of subsidized products.
WTO rules governing the use of countervail measures are similar to that
of anti-dumping measures; the primary difference being that the investigations
pursuant to countervail measures focus on the behaviour of governments,
while anti-dumping investigations focus on the pricing behaviour of individual
companies. The WTO establishes and defines three types of subsidies, which
are often referred to as the "traffic light" rules. Some subsidies
are prohibited (red light) such as export subsidies (the exception being
when applied to agricultural products); others are "actionable"
(amber light) such as subsidies that are found to be specific or targeting
an enterprise; and yet others are "non-actionable" (green light)
such as general subsidies for research and development, regional assistance,
etc.
Witnesses before the Committee were generally supportive of the goals
of the WTO's subsidy and countervail measures, although complaints about
the clarity of definitions used in determining the classification of subsidies
were voiced.
Looking at the agreement on subsidies and countervailing duties ...
Canada should concentrate its efforts ... on improving and clarifying existing
provisions regarding the definition of the subsidy concept and the conditions
for imposing trade sanctions. To be countervailable or subject to trade
sanctions, a subsidy must be specific. That is, it must be limited to certain
enterprises or industries within the jurisdiction of the granting authority.
[Gilbert Gagné,110:1355]
The general satisfaction of the public with the WTO's current subsidies
and countervail measures framework prompts the Committee to recommend:
18. That the Government of Canada seek to establish a subsidy and
countervail measures framework at the multilateral level.
Technical Barriers to Trade
Standards-related measures, which are usually applied to protect health,
the environment or the consumer, include mandatory technical regulations,
voluntary standards and conformity assessment procedures. It has generally
been the opinion, in Canada and elsewhere, that these measures should not
be allowed to unjustifiably discriminate against foreign products. The
WTO Technical Barriers to Trade (TBT) Agreement thus sets out the international
rights and obligations of member countries with respect to these standard-related
measures as they affect trade. Essentially, the TBT recognizes the right
of countries to establish their own standards, but requires that members
not apply them more rigorously on imported products than domestic products.
Canada has done well by this agreement, being one of the first to initiate
a WTO TBT dispute and to successfully challenge French regulations dealing
with the labeling of scallops. Canada has also challenged France over its
ban on the use of chrysotile asbestos.
While the Committee has dealt with this issue at some length in terms
of the environment and in the next chapter with respect to sanitary and
phytosanitary measures, we also solicited views on their general application.
Canada also has an excellent opportunity within this process to guard
against the potential for any non-tariff barriers to become a threat to
our future market access in the region. Non-tariff barriers are technical
regulations or requirements that can provide for discriminating treatment
of imported foreign goods versus domestically produced goods. Building
on the disciplines already within the World Trade Organization agreements,
Canada should take advantage of this opportunity to seek further discipline
in areas such as standards development and use to ensure that these tools
cannot be misused for protectionist purposes. [Joel Neuheimer, 30:1620]
And
We also recommend that the negotiations for the free trade agreement
of the Americas address the issue of trade-distorting technical barriers
that can impede market access. All measures related to technical barriers
to trade under the free trade agreement of the Americas must be WTO consistent,
in our view, and they must be justified on the basis of scientifically
sound risk assessment and consideration of risk management options. [Gordon
Peeling, 30:1610]
The Committee concurs and recommends:
19. That the Government of Canada seek to establish a Free Trade
Area of the Americas agreement that incorporates rules on technical barriers
to trade that are consistent with our international obligations.
Safeguards
Safeguards are temporary trade measures applied by a government on an
emergency basis against increased imports of a particular good that is
causing, or threatening to cause, serious injury to its domestic industry
producing like or directly competitive products. Safeguard actions must
comply with the requirements of Article XIX of the GATT 1994 and the WTO
Agreement on Safeguards. Canada and the United States committed in its
free trade agreement to exclude each other from global safeguard actions
under GATT Article XIX unless imports from the other party were "substantial"
and "contributing importantly" to the serious injury or threat
thereof caused by increased imports. This standard was carried over to
the NAFTA.
The Committee was informed that WTO safeguard actions have so far had
little impact on Canadian exports. The Committee recommends:
20. That the Government of Canada seek to establish a Free Trade
Area of the Americas agreement that incorporates safeguards consistent
with the standards established in the North American Free Trade Agreement.