FINA Committee Meeting

37th PARLIAMENT, 3rd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Monday, March 8, 2004

º

1635

The Chair (Mr. Roy Cullen (Etobicoke North, Lib.))

The Hon. Denis Paradis (Minister of State (Financial Institutions))

Mr. Patrick Halley (Senior Economist, International Trade Policy Division, Department of Finance)

Ms. Emmy Verdun (Director, International Trade Policy Division, Department of Finance)

Mr. Andrew Moroz (Director, Trade Control Policy Division, Department of Foreign Affairs and International Trade)

Hon. Denis Paradis

º

1640

º

1645

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, CPC)

Hon. Denis Paradis

Ms. Emmy Verdun

Mr. Rahim Jaffer

Ms. Emmy Verdun

Mr. Rahim Jaffer

Ms. Emmy Verdun

º

1650

Mr. Rahim Jaffer

Ms. Emmy Verdun

Mr. Rahim Jaffer

The Chair

Mr. Odina Desrochers (Lotbinière—L'Érable, BQ)

Hon. Denis Paradis

Ms. Emmy Verdun

Mr. Odina Desrochers

Hon. Denis Paradis

º

1655

Mr. Odina Desrochers

Hon. Denis Paradis

Ms. Emmy Verdun

The Chair

Hon. John McKay (Scarborough East, Lib.)

»

1700

Hon. Denis Paradis

The Chair

Hon. Denis Paradis

Ms. Emmy Verdun

»

1705

Hon. John McKay

Ms. Emmy Verdun

Hon. John McKay

Ms. Emmy Verdun

Hon. John McKay

The Chair

Mr. Alex Shepherd (Durham, Lib.)

Ms. Emmy Verdun

Mr. Andrew Moroz

Mr. Alex Shepherd

Ms. Emmy Verdun

Mr. Alex Shepherd

»

1710

Mr. Patrick Halley

Ms. Emmy Verdun

Mr. Alex Shepherd

Mr. Patrick Halley

Mr. Alex Shepherd

Mr. Patrick Halley

Mr. Alex Shepherd

Ms. Emmy Verdun

Mr. Alex Shepherd

Ms. Emmy Verdun

Mr. Alex Shepherd

Ms. Emmy Verdun

Mr. Alex Shepherd

Ms. Emmy Verdun

The Chair

Mr. Rahim Jaffer

Ms. Emmy Verdun

Mr. Rahim Jaffer

Ms. Emmy Verdun

Mr. Rahim Jaffer

»

1715

Ms. Emmy Verdun

Mr. Rahim Jaffer

The Chair

Ms. Emmy Verdun

The Chair

Ms. Emmy Verdun

The Chair

Hon. Denis Paradis

Ms. Emmy Verdun

»

1720

The Chair

Hon. Denis Paradis

The Chair

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CANADA

Standing Committee on Finance

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NUMBER 006

l

3rd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Monday, March 8, 2004

[Recorded by Electronic Apparatus]

º  (1635)  

[English]

    The Chair (Mr. Roy Cullen (Etobicoke North, Lib.)): Perhaps we can come to order, please.

    We're here to discuss Bill C-21, an act to amend the Customs Tariff.

[Translation]

    I want to welcome Mr. Denis Paradis, Minister of State (Financial Institutions).

[English]

    Minister, perhaps you could introduce the officials who are at the table and then proceed with your presentation and then we'll start a round of questions.

[Translation]

    The Hon. Denis Paradis (Minister of State (Financial Institutions)): Thank you very much, Mr. Chairman. With your permission, dear colleagues, I'm going to ask the persons accompanying me to introduce themselves, starting with Patrick.

    Mr. Patrick Halley (Senior Economist, International Trade Policy Division, Department of Finance): Good afternoon, my name is Patrick Halley and I am with the International Trade Policy Division at the Department of Finance.

[English]

    Ms. Emmy Verdun (Director, International Trade Policy Division, Department of Finance): My name is Emmy Verdun. I'm director of the international trade policy division, Department of Finance.

    Mr. Andrew Moroz (Director, Trade Control Policy Division, Department of Foreign Affairs and International Trade): My name is Andrew Moroz. I'm director of the trade control policy division, Department of Foreign Affairs and International Trade.

[Translation]

    Hon. Denis Paradis: Thank you, Mr. Chairman. I am indeed very happy to be with you this afternoon. This will be my first appearance before the Standing Committee on Finance since I was appointed Minister of State for Financial Institutions. I thank you, Mr. Chairman, for this invitation, and I appreciate the opportunity to appear before the members of the committee on Bill C-21, an Act to amend the Customs Tariff. I will keep my remarks brief in order to leave time for questions.

    This bill extends two longstanding tariff programs—the General Preferential Tariff (GPT) and the Least Developed Country Tariff (LDCT)—for an additional ten years until June 30, 2014. Both are scheduled to expire on June 30, 2004.

    Implemented through the Customs Tariff, these are the main tariff programs through which Canada provides benefits to developing and least developed countries.

[English]

    The GPT is a tariff preference granted to developing countries for goods originating in those countries. The LDCT provides duty-free access to most products entering Canada from 48 of the world's poorest countries. Both programs have been in place for decades as part of Canada's commitment to help stimulate economic growth and reduce poverty in the developing world, a commitment reiterated on many occasions by Canada in fora such as the G-8 and the World Trade Organization.

    Canada stands with all major industrialized nations, including the United States, Japan, and the European Union, in supporting the developing world through preferential tariff programs. Let me take a moment and provide some background to these programs.

    In the mid-1960s, Mr. Chairman, there was a widespread recognition that preferential tariff treatment for developing countries was a means of fostering the growth and well-being of poorer nations. Consequently, in 1968 it was agreed at the United Nations Conference on Trade and Development that a system of trade preferences should be implemented for developing countries. Most industrialized countries established a generalized system of tariff preferences for developing countries during the early 1970s.

    Canada introduced its own version of this tariff preference, the GPT, on July 1, 1974, for a 10-year period. The GPT was subsequently extended until June 30, 1994, and then to June 30, 2004. Canada's GPT applies to over 180 developing countries and territories and covers most items in the customs tariff except for supply-managed agricultural products, refined sugar, and most textiles, apparel, and footwear. Three-quarters of these products enter Canada duty-free; the remainder have tariff rates that are less than the regular most-favoured-nation rates.

    The LDCT was introduced in 1983 in an effort to provide more generous preferential tariff treatment to goods from the world's poorest countries as defined by the United Nations and based on criteria such as national income, health, and education.

[Translation]

    Consistent with a commitment made by Canada at the 2002 G-8 Summit in Kananaskis, since January 2003, Canada has provided duty-free access under the LDCT to all imports from least developed countries, except for supply-managed agricultural products such as eggs, milk, and chicken, among others.

    The contribution of both programs to the Canadian economy is significant. In 2003, for example, Canadian imports under the GPT were valued at $9.3 billion while imports under the LDCT amounted to $408 million.

    Honourable members of the committee may be interested to know that in 2003, China was the main beneficiary of the GPT, accounting for 66% of all GPT imports, followed by South Korea, Thailand, Brazil and India.

    In 2003, Bangladesh was the main beneficiary of the LDCT, accounting for 75% of all LDCT imports. Cambodia and Haiti were the second and third largest beneficiaries.

    Mr. Chairman, there are several reasons why it makes sense to extend the GPT and the LDCT for a further ten years. To begin, extending these programs would reaffirm the government's commitment to promoting the export capability and economic growth of developing and least developed countries—the main reason these tariffs were initially established.

    It should be noted that various studies by international organizations such as the International Monetary Fund and the World Bank support the principle that export expansion contributes to economic growth.

    Extending these programs would continue a longstanding international practice of providing preferential tariff treatment to goods from the world's poorest nations.

    In this regard, Canada would join other developed nations, such as the United States, the European Union and Japan, who have recently extended their own tariff preferences programs.

    As well, continuing these programs sends a message to beneficiary countries. They continue to see these programs as an important factor in their access to the Canadian market, and, as such, it is expected that imports under these two programs will continue to grow.

    While exporters in developing and least developed countries benefit from the preferential access provided by the two programs, these tariffs also benefit Canadians.

    In particular, Canadian importers and consumers will benefit from the continuation of these tariff programs through lower-priced finished goods and input costs.

    As a result of lower tariffs on goods from the developing world, Canadian consumers enjoy access to imported goods at competitive prices and will continue to do so if these programs are extended.

    In addition, Canadian producers will continue to benefit from the reduced tariffs on inputs they import from the developing world and use in the production of goods in Canada, which ultimately increases the competitiveness of Canadian industry.

º  (1640)  

[English]

    Mr. Chairman, the reasons that originally led to the establishment of preferential tariff programs—that they would encourage an increase in exports from developing and least-developed countries and stimulate economic growth—remain today. There are still many countries in the world with low per capita income levels.

    In closing, let me briefly summarize the advantages of extending the GPT and LDCT. To begin, Canada will continue a long-standing international practice of providing preferential tariff treatment to goods from the world's poorer nations. Next, continuing the programs for a fixed period of ten years is consistent with past practice and provides certainty and predictability to traders using them in Canada and in the developing and least-developed countries. As well, continuing the program complements Canada's foreign aid policies. Finally, these programs benefit Canadians by providing them with goods that are subject to a lower rate of duty.

[Translation]

    With your permission, Mr. Chairman, I would add that in parallel with this 10-year extension of customs tariffs, my colleague Ms. Robillard, the Minister of Industry, announced just a few days ago, on February 27, measures intended to assist our textile and apparel industry. These measures to be implemented over a three-year period will represent some $60 million in total. Of that amount, $26.7 million will be allocated to the greater efficiency of textile production and $6.5 million will be used within the framework of the Canadian Apparel and Textile Industries Program. In addition, tariff reductions of $26.7 million over three years will be applied to the apparel sector.

    My experience as person responsible for Africa allowed me to see that the reduction or abolition of tariffs, customs tariffs, etc., particularly in African countries that are the poorest on the planet, is a much appreciated measure. This is also true for other countries throughout the world.

    Within the framework of the special 500-million-dollar fund allocated to Africa and announced at the Kananaskis Summit, 100 million was to be used to assist the creation of industries in Africa, among others, as well as the creation of partnerships between Canadian and African businesses. These are basically a series of measures aimed at assisting those countries that are most in need.

    Thank you very much, Mr. Chairman. I am ready to entertain questions from the members of the committee.

º  (1645)  

[English]

[Translation]

    The Chair: Thank you very much, Mr. Paradis. We shall begin with a round of seven-minute questions.

    Mr. Jaffer.

[English]

    Mr. Rahim Jaffer (Edmonton—Strathcona, CPC): Thank you, Mr. Chairman, and thank you, Minister, and all your guests here today.

    If I understand correctly, the general tariff rate is set currently at 35%. Is that correct? The highest tariff--

    Hon. Denis Paradis: Technically speaking, there are different tariffs, but I think the average is something more like 15% or 16% or something like that.

    Madam Verdun.

    Ms. Emmy Verdun: The trade-weighted average tariff is about 1.8%, because most of our trade is with the United States, and under NAFTA there are zero tariffs on imports from the United States and Mexico.

    I think the 35% tariff rate you're referring to applies only to two countries, who are not members of the WTO. Our average tariff, as the minister has explained, varies by the particular product. Most of our tariffs, where there are tariffs, are under 10%. There are some industrial and consumer goods for which the tariff is above 10%, and those tend to be ships, textiles, apparel, and footwear. Agricultural products are different, and I'm not referring to those. There are quotas on a number of products--for example, the supply-managed products of dairy, poultry, and eggs, where there are quotas, and then the above-quota tariffs can be several hundred percent. So the tariff is not a flat tariff.

    Mr. Rahim Jaffer: Okay.

    One thing I was trying to understand is it seems that certain industries are weighted differently, and in the strategy to try to help developing countries, I was curious as to how some of these tariffs are then created or established. I understand they're set by orders in council, are they not, for particular countries--or am I not right?

    Ms. Emmy Verdun: The overall tariff is in legislation in the customs tariff, and that's the result of negotiations under either a bilateral or regional free trade agreement, as we have with the United States and Mexico, or under the negotiations we have multilaterally under the WTO.

    For example, the most recent WTO negotiations ended in the mid-1990s in the Uruguay Round. Depending on what the negotiation is, there may be cuts that are greater to higher tariffs than to lower tariffs.

    Canada's tariffs have certainly come down a great deal in the last 40 years as a result of successful negotiations in the WTO.

    Mr. Rahim Jaffer: Okay. I think this makes sense, extending those two categories to deal with those particular countries that fall in those categories. But to go further, is it in the interests...? You mentioned just now that overall Canada has continued to reduce those tariffs with a number of countries, depending on agreements that are signed and our relationship with those various countries. Is there a process or does it make sense for Canada to continue down that road and streamline that level of tariff if we are reducing it anyway? Is there an optimal amount we should be aiming toward? It seems that Canada is open to freer trade. Should we move to almost a zero tariff in some of these areas?

    This is something I'm interested in, just to see where we should be engaging in discussions on that.

    Ms. Emmy Verdun: That's certainly an ongoing question. Canada and all the other WTO members are currently engaged in negotiations under what is called the Doha Round. That Round was supposed to end in 2005. Given the failure of countries to agree on a number of significant issues, particularly agriculture, it appears those negotiations will not end until 2006 or 2007.

    Certainly Canada is prepared to provide greater tariff cuts in return for access to other markets. While Canada's tariff rates are quite low, other countries still have significant barriers. That's particularly true for some of the larger developing countries, such as India and Brazil. So one of the things we're doing is negotiating to lower our tariffs, but in return for market access to other countries.

    The United States, for example, has put an offer on the table in the WTO that says they would reduce all their tariffs to zero in the non-agricultural sector in return for the same kind of reciprocal action by other countries. It's getting market access to some of the other countries that have much higher tariffs than we do that's really stopping us from going to zero tariffs.

º  (1650)  

    Mr. Rahim Jaffer: The reciprocal engagement of those countries is something we obviously have to be concerned about. Ultimately, if our strategy is to help some of these developing countries continue to evolve, then obviously the lowest tariff possible would engage that strategy, as long as they're willing to do the same or work with us on that basis.

    Ms. Emmy Verdun: When I was speaking about tariffs, I was talking about the tariffs that apply to countries other than developing countries. As Minister Paradis explained, for the least-developed countries—that is, the poorest countries—our tariff rates are zero. For the developing countries—India, Brazil, and so on—there is a reduction in the tariff we would otherwise apply, so they get a tariff preference through these two programs.

    Mr. Rahim Jaffer: Thank you.

    The Chair: Thank you, Mr. Jaffer.

[Translation]

    Mr. Desrochers, please.

    Mr. Odina Desrochers (Lotbinière—L'Érable, BQ): Thank you very much.

    Mr. Moroz, Mr. Paradis, Ms. Verdun, Mr. Halley, thank you for having taken the time to come here this afternoon. Let me say right from the outset, Mr. Paradis, that the Bloc Québécois fully supports your bill, because the suspension of the two tariff programs would have incredibly adverse effects after June 30^th.

    Mr. Paradis, how does this bill you are introducing for Canada compare to those in other countries, such as the United States or the European Union? It must said that this projected extension is a cutting-edge approach. Could you give us a thumbnail sketch of the situation?

    Hon. Denis Paradis: I have this information somewhere.

    Go ahead, Ms. Verdun.

[English]

    Ms. Emmy Verdun: All countries have different kinds of programs; they're not standard programs. Canada's program compares very favourably. It is quite generous. We cover 185 countries or territories. That's more than the United States, Japan, and the European Union. Also, we have no conditions attached to our preferences, whereas the United States and the European Union do have some conditions attached to receiving the preference. So our program is simpler. We also have a higher number of tariff items covered—81%—compared with the United States, for which it's about 50%. So our program is generally speaking more generous than that of the United States or the European Union.

    The same thing holds true for our program for the least-developed countries, particularly with the changes made in January of 2003. Again, there are no conditions attached. Apart from the supply-managed agricultural goods—dairy, poultry, eggs, and so on—we cover everything. The United States, for example, has a specific program for the sub-Saharan African countries, and in the case of Japan, virtually all of their agriculture products are excluded. So our program is more generous, generally speaking, than those of other countries.

[Translation]

    Mr. Odina Desrochers: Thank you very much.

    Mr. Paradis, you spoke of China. You know that Chinese activity causes a lot of plants to close, especially in Quebec. The textile industry is particularly affected. I know that China has certain problems, but it is beginning to be a major player in the world of trade. How do you see China now? Of course, it has a population of over a billion people, but it is increasingly competitive. Are we going to be encouraging a country that is causing problems in our own economy, in Quebec or on the national scene?

    Hon. Denis Paradis: Yes, you are quite correct, China is a player in those markets at this time. I have just completed, among others, a pre-budget tour of Quebec, and I must say that this is a topic which was raised in several places. People quoted the hourly wage paid to employees in China. It will be difficult for us in Canada to pay wages comparable to those.

    The ones who spoke up most frequently about these tariffs are certainly the people involved in our textile and apparel sectors. I visited textile and clothing plants, one in Montreal, among others, with 3,000 employees, that is 1,000 employees per floor on three floors. On this topic I have always thought and still think that as the government is giving the poorest countries, the least developed countries—the LDCs— access to our markets, it is important that it also contribute to helping our textile and apparel industries. That is why, almost simultaneously with the introduction of this bill, the Minister of Industry has earmarked an envelope for the textile and apparel industry, as I mentioned. This is an overall envelope of about $60 million, half of which is intended for programs in the textile sector, the other half being for a tariff review in the apparel sector, these two sectors being somewhat different. All of this will be brought in over a three-year period.

    So, yes, I think it is important to help other countries, but we must also consider our own markets and act accordingly, and keep in mind the interests of our own workers and fellow citizens.

º  (1655)  

    Mr. Odina Desrochers: What is your perspective on China now? That was the question I asked you. For my part, I consider that country to be a major trade partner.

    In connection with your bill, how do you situate yourself with regard to China? How do you see it? I consider that it causes many problems in our textile sector.

    So, how do you see China at this time?

    Hon. Denis Paradis: Ms. Verdun wanted to add something to my reply.

[English]

    Ms. Emmy Verdun: You asked how China is considered. You mentioned textiles and apparel. I think it's important to note that textile and apparel imports from China do not get a tariff preference. They pay full tariff rate. So textiles and apparel are not covered by the GPT, for which China is eligible. The other point I want to make is that China is classed as a lower-middle-income economy by the World Bank. It has a GDP per capita in the same range as Paraguay, Philippines, and Swaziland. So you're quite right that China is the largest beneficiary of the GPT. Although it is a very large country, it is still not a rich country.

    This particular bill is focusing only on the extension of these two programs. The issue of country and product coverage is not being looked at at this time, but it is an issue that can be dealt with any time the government would wish to. The last time the GPT and LDCT were extended, we were in the middle of WTO negotiations as well, so at that time we extended the two programs without change, as we are proposing to do now. When the WTO negotiations were completed, there was a complete review of the product and country coverage. If the government wished to review the product and country coverage, that could be done at any time. That would be done not by legislation but by order in council, and it would be based on full consultations with stakeholders. So that is a possibility at any time.

    The Chair: Merci, Monsieur Desrochers.

    Mr. McKay, please.

    Hon. John McKay (Scarborough East, Lib.): Thank you, Mr. Chair.

    Thank you, Minister. Obviously I'm supporting this bill.

    Mr. Desrochers actually anticipated my line of questioning on China. While you may argue that their GDP per person is comparable to Paraguay, a brief tour of Shanghai will give you some indication of the immense wealth-generating capacity of the Chinese people. I understand this will be the first year when more cars will be produced in China than in Canada--I think that's right--and that's only going to go up.

    So really, your general preferential tariff is the Chinese tariff. The other countries are quite small, although interestingly, South Korea is in there as well. I'm wondering whether there is a scheduled review of this general preferential tariff as it relates to China and to South Korea, and whether there is a kind of automatic triggering mechanism that allows a country like Canada to review it. I appreciate there's a fairly complex set of equations on whether a tariff is going to be reviewed for an individual country.

    The second question is on the other tariff of the lesser-developed countries, which really appears to again be the Bangladeshi tariff. I note that India gets a general preferential tariff, China gets a general preferential tariff, and Bangladesh is effectively zero-rated. Geography fails me from time to time, but by and large those countries are fairly close to each other.

    What efforts is the Government of Canada making to make sure that apparel, in particular, and textiles in general don't slip into Bangladesh from these other countries and arrive on Canadian shores, so we're not only forgiving revenues but actually enhancing our forgiveness, if you will?

    If you could elaborate on those two points, I'd appreciate it.

»  (1700)  

    Hon. Denis Paradis: Maybe I will let Emmy answer the first question. I'm new at the job; I'm not too familiar with how the department works, and the dates of everything.

    On the second thing, the least-developed countries, we're referring to Bangladesh. Something like 48 countries are in the group of the least-developed countries. If we remember, it was announced in Kananaskis that it was supposed to be oriented more toward those countries--the poorest countries in Africa. Then we made it for all the least-developed countries.

    You're absolutely right that when we talk about Bangladesh, the textile industry, for example, is something we hear a lot about. People are kind of concerned about the rules of origin, and those things. I think your committee is going to be meeting with people from the industry in the coming days.

    The Chair: Tomorrow.

    Hon. Denis Paradis: The department has regular consultations with the industry to make sure that what we do to help others

[Translation]

    does not harm the Canadian textile and apparel industry. I think that is important. You will be able to discuss this tomorrow with representatives from the industry.

    Let us talk about the review.

[English]

    On the review of those tariffs, we're asking in this law that the whole thing be prolonged by another ten years. But as Emmy was saying, in this period of ten years there will be times when those kinds of tariffs can be discussed.

[Translation]

    Could you continue, Emmy, and provide some explanations on this, please?

[English]

    Ms. Emmy Verdun: There is no automatic timetable for review. That is entirely up to the government. It can be done at any time. There is no schedule, so the government could decide to do it when it wanted to.

    In terms of the issue of enforcement, as Minister Paradis explained, there are rules of origin that require 25% value-added in the least-developed country in order to quality for the zero tariff. In addition, the Canada Border Services Agency and the Department of International Trade require a memorandum of understanding between our government and the government of the LDC before they are eligible for the zero tariff. That is to ensure that enforcement can be effective.

    You are quite right, the industry has been concerned about the possibility of illegal transshipment. In addition, Canada Border Services Agency staff have been to Bangladesh to get a first-hand view of what the enforcement mechanisms are and what possible problems there might be. So they are doing whatever they can to ensure effective enforcement of the rules of origin and to ensure that goods that are actually made in China or India are not illegally coming into Canada under the zero tariff.

»  (1705)  

    Hon. John McKay: On the point of the 25%, I'm not clear on what that means. Does that mean that the value of the product has to be enhanced by 25% in Bangladesh, if you will, before it is entitled to be...?

    Ms. Emmy Verdun: Yes, that's right.

    Hon. John McKay: Okay, I follow that.

    Ms. Emmy Verdun: They could import fabric from another country, but the actual sewing and the putting together of the garment would have to be done in Bangladesh. It couldn't just be a matter of putting a label on or putting it in a box. It actually has to be sewn in Bangladesh.

    Hon. John McKay: Thank you.

    The Chair: Thank you, Mr. McKay.

    Mr. Shepherd.

    Mr. Alex Shepherd (Durham, Lib.): I would like to follow on that point. Why is that threshold what I would consider very low, at 25%? Clearly we're saying 75% of the product could well have originated in another country that wasn't eligible for the preference. Wouldn't it be reasonable if this 25% were higher?

    Ms. Emmy Verdun: The 25% was based on trying to balance two competing objectives. One was to provide benefit to the countries that were very poor and that needed to have export earnings in order to help their economic growth. The other part, of course, was a recognition that you wanted to make sure that there was a significant amount of economic activity taking place in that country.

    The other thing is that wage rates are fairly low there, so a 25% value-added actually means a lot of activity.

    Andy, can you add to that, on the rules of origin?

    Mr. Andrew Moroz: Thank you.

    As Emmy said, the 25% value-added for a country like Bangladesh is actually significant, because of the low wage rates and also because the main inputs of the suit, for example, or the shirt are the yarn and fabrics.

    One of the reasons the government chose the rules of origin that it did was it wanted to ensure that these countries had an opportunity to actually benefit from the LDCT.

    In balancing the fact that most of these countries do not produce their own yarns or fabrics, they would have to import the yarns and fabrics from other countries, including China, I'll admit that.

    They wanted to say we want to give these countries an opportunity to take advantage of this. At the same time, they wanted to avoid a situation where somebody would bring in a shirt that has everything but the collar on it, and just sew the collar on. The balancing act was 25%, plus you have to do the sewing of the apparel in the least-developed country.

    Mr. Alex Shepherd: In view of the fact that these preferential tariffs have been in place for so long, and given the goal of the tariff itself, why wouldn't you try to index that--in other words, make it progressively higher to encourage that country to have more value added over the period of time that the tariffs are in place, rather than this fixed 25% that has been in place for, what, 20 years?

    Ms. Emmy Verdun: The 25% in fact has only come in place this year, because the revision to the least-developed country tariff came into effect last year. Before that, textiles and apparel were not eligible for tariff preferences. They came into Canada at the same rate from developing countries as from any other country. It was the same for Bangladesh as for Europe. It was the changes that the government announced in Kananaskis that were introduced on January 1, 2003, that put in place that 25%. That part is recent. The program itself is longer-standing, but it did not, in the past, include textiles and apparel.

    Mr. Alex Shepherd: I guess I'm a little confused by the process. For instance, I see Costa Rica and Mexico on here. With both of these countries, we have free trade agreements.

    Why do we continue to need a preferential tariff, where presumably you would have thought that it would be governed by a free trade agreement?

»  (1710)  

    Mr. Patrick Halley: It is an addition to the free trade agreement. The free trade agreement is a stand-alone agreement, and there is a specific tariff that applies to Costa Rica only. Costa Rica was eligible for the GPT before we negotiated the free trade agreement, and it was felt that it was not necessary to remove that benefit, since we were already doing a specific tariff that would apply only to that country.

    Ms. Emmy Verdun: In other words, it was already on the list, and we just didn't remove it from the list when we did it—

    Mr. Alex Shepherd: I would have thought that you would have taken a more holistic approach to free trade, and that the free trade agreement would encompass all the trade going on between the two countries, but that's not the case.

    Is there a sidebar agreement with a separate tariff schedule?

    Mr. Patrick Halley: No, no, there is a free trade agreement with Costa Rica dealing with all of the products from that country. This tariff treatment is a separate tariff treatment, the GPT.

    Mr. Alex Shepherd: It is in addition to—

    Mr. Patrick Halley: Yes, in addition to.... So removing Costa Rica from it would not necessarily do any harm or good, because trade with Costa Rica would likely be governed under the free trade agreement, which applies a zero tariff over a certain period of time on all products exported from Costa Rica.

    Mr. Alex Shepherd: The way you explain it, though, it sounds like a duplication, does it not?

    Ms. Emmy Verdun: In some cases it may be a duplication, but when we sign a free trade agreement, we phase in our tariff cuts. So during that phase-in period, the GPT could be more preferential for certain countries.

    You're right that it may make sense to remove those countries from the list once all the tariff cuts have been phased in. In that sense, it could be a duplication. It may save some administrative work for the country, perhaps.

    Mr. Alex Shepherd: My final question would be.... I know reciprocity doesn't necessarily enter into it, because of the objectives of the program. But when I look at a country like Brazil, which we clearly compete with in the aerospace industry, do we get some kind of reciprocity for this preferential tariff? Does Brazil similarly—

    Ms. Emmy Verdun: No.

    Mr. Alex Shepherd: So we give them this preferential tariff. I don't know if it's on a sector-by-sector basis, but at the same time we may well have difficulty competing in other areas in Brazil.

    Ms. Emmy Verdun: That's right.

    Mr. Alex Shepherd: So we are very magnanimous about our tariffs. Is that right?

    Ms. Emmy Verdun: Yes, we are.

    The Chair: Thank you, Mr. Shepherd.

    Mr. Jaffer has a quick question.

    Mr. Rahim Jaffer: Yes, it is just for clarification on something Mr. Shepherd was saying.

    Something I am not 100% clear on is if a country does fall into one of those two categories you just mentioned, Ms. Verdun, there is a process where you reduce the overall tariffs, because if they fall in that category the preferential tariff is zero. Isn't that correct?

    That's exactly where I'm confused. Are different industries given different tariffs, even if they fall under those two lists? Is that how it currently works?

    Ms. Emmy Verdun: Yes, that's correct.

    Mr. Rahim Jaffer: Okay.

    The one thing I was curious about, as Mr. McKay said, is if there is nothing triggering these reviews, is there a precedent for a case with a certain country where it falls into one of those categories, such as a case of dumping in a certain industry—or, if we wanted to look at a completely different issue, if there were a case of human rights Canada might be concerned about? Would that sometimes trigger a process to review our tariffs to deal with that particular country?

    Ms. Emmy Verdun: I'll deal first with your first question. We do not discriminate within the GPT; you are either on the list or you're not on the list. All the GPT countries get the same tariff preference, and it's a reduction in the tariff rate that would normally apply to other countries.

    In the case of dumping and countervailing duty investigations, they are done on a country-by-country basis. If they were put in place, those duties would be on a specific country on a specific product. For example, if we found that steel from China were being dumped—and there have been cases—then imports of Chinese steel, of whatever kind it was, would face an additional duty.

    On your second question.... I'm sorry, it was with respect to....

    Mr. Rahim Jaffer: If we used those mechanisms to trigger those reviews, and there were other issues of concern to Canada with regard to those countries if they were violating--

»  (1715)  

    Ms. Emmy Verdun: No, we do not. In fact, the WTO intention was that it was to be non-discriminatory. There was a recent case in which India successfully challenged the EU because of a discriminatory aspect of the EU's general system of preferential tariffs. The intention was that if you meet the criteria to be a GPT or LDCT country, you would receive the preference. Having said that, there have been times when countries have gotten together multilaterally and decided to put trade sanctions against certain countries. That is the reason that Myanmar is not on our list of LDCs. It was certainly the case in the past with trade sanctions against South Africa. So that has been Canada's approach. We use other means to promote human rights and labour standards--for example, through the International Labour Organization. But we do not discriminate in our tariff preferences. That wasn't the intention when the WTO set up the program in the first place.

    Mr. Rahim Jaffer: Thank you.

    The Chair: Thank you, Mr. Jaffer.

    I have a couple of questions.

    This bill extends the GPT and LDCT for a further ten years. Let's use Bangladesh as an example. Let's say that the economy started to take off and they moved from a least-developed to a developing country. Would they automatically move from one tariff schedule to another? Is that at the call of the Government of Canada, or is it mutually agreed upon? How does that work?

    Ms. Emmy Verdun: For the least-developed-country tariff, we use the UN list. If a country were to graduate out of poverty, as it were, then the Canadian government could make a decision to take that country out of the LDC tariff and put it in the developing country tariff. In the past that was done with Botswana. Similarly, countries that fall below the line can be added. That would still require action on the part of the Canadian government--not legislation, but an order in council. That's the intention in terms of following the least-developed-country tariff. There isn't a specific list for developing countries, so you'll find more variability among countries in terms of which countries they classify as developing or not. There is more scope, therefore, for the government to decide which countries are developing, although, as I said, the WTO intention was to be non-discriminatory among the developing countries. But you could look at criteria for income and so on and decide that a country no longer....

    The Chair: Would it be totally at the call of the Government of Canada?

    Ms. Emmy Verdun: Yes, with the proviso that if you start to discriminate among developing countries of a similar kind, then you would run into difficulty. But if you were, for example, using criteria that focused on countries whose incomes have grown, then I think you would be on solid ground if you applied those criteria without discrimination.

    The Chair: I have a final question, and I don't want to open up a hornet's nest here.

    When we talk about supply-managed agricultural products not being included, a lot of poor countries would like to get their agricultural products into these categories. If they were able to do that, it would help their economy significantly. Are there more pressures to include those within these schedules? What are the dynamics in terms of the trade-offs the Government of Canada would look at? Is that something that will never happen, or is it something that could happen over time?

    Hon. Denis Paradis: When we talk about those products under management, we're talking mostly about eggs, chickens, and milk. When I had discussions with the people in Africa, for example, where the tariff will be zero except on those supply-managed products, people were not interested in sending milk to Canada from different countries in Africa, or eggs or chickens. So there's not a big market that would interest them in sending us those products. It's not all the agricultural products that are under supply management. It's just three or four. So it's different for the other products.

    Ms. Emmy Verdun: We do import a number of agricultural products from least-developed countries and developing countries, but they tend to be fish, fish products, coffee, tropical fruits, juices, those kinds of things. The supply-managed area really is dairy, poultry, eggs, and developing countries would have some difficulty meeting the sanitary regulations to get them into the country even if there weren't a tariff. I think they would be of less interest to them than other agricultural products that do come in either with a tariff preference or with a zero tariff.

»  (1720)  

[Translation]

    The Chair: Thank you very much, Mr. Minister, ladies and gentlemen, distinguished officials.

[English]

    Members of the committee, thank you.

    Tomorrow afternoon we'll have a panel of four on this particular bill, and we'll try to deal with this bill clause by clause and Diane Ablonczy's bill and get rid of both of them.

[Translation]

    Hon. Denis Paradis: Thank you very much, Mr. Chairman.

    I also wish to thank the members of the committee.

    The Chair: Thank you very much.

    The meeting is adjourned.