CIIT Committee Report

Government Response to the Seventh Report of the Standing Committee on International Trade

Ten steps to a better trade policy: Recommendations

Recommendation 1

The Government of Canada should increase its current expenditures on trade negotiation and promotion by a full 50 percent. This increased spending should be allocated to:

• Canadian trade negotiators;
• trade commissioners;
• new diplomatic offices in countries and regions with significant commercial potential for Canada (China, India, the Gulf States and the Association of Southeast Asian Nations, to name a few):
• international business development programs, including a revamped Program for Export Market Development (PEMD);
• aggressive marketing and promotion of Canada and Canadian products abroad; and
• bilateral business associations.

Response

The Government of Canada agrees that a coherent approach is required to ensure Canada can take advantage of new markets and extend its global reach. Canada is facing a very real problem: we are less competitive, even in North America. There is a widespread national consensus that Government must step up its efforts to improve Canada’s lagging performance.

The Government’s overall economic plan, Advantage Canada, and the Global Commerce Strategy (GCS) – complementary and mutually reinforcing strategies – respond to this challenge. The GCS will enhance the success of Advantage Canada in the same way that investments in infrastructure, especially in our Gateways and Corridors, will foster Canada’s development into a leading centre for international commerce. These interrelated initiatives will ensure Canada’s competitiveness, drive productivity growth, enhance our standard of living, and make Canada a world leader today and for future generations.

In the February 2007 Budget, the Government provided $60 million over two years to advance core objectives of the Global Commerce Strategy (GCS), namely: 1) support an expansion of Canada’s bilateral trade network; 2) strengthen Canada’s competitive position in the North American market; and 3) extend Canada’s reach to new markets, starting with Asia.

The GCS, however, goes beyond what is highlighted in the Budget, and includes improving coherence and leveraging partnerships across Government and with the private sector; realigning our international network focussing on key sectors and priority markets; re-orienting our services and harnessing private sector expertise; and improving accountability through better performance measurement and a greater emphasis on results.

 

Recommendation 2

The federal government should immediately undertake a review of the existing legislative restrictions that restrain Export Development Canada from having greater commercial presence in emerging markets, and remove these restrictions where feasible.

Response

The Government of Canada agrees. We are reviewing the restrictions on EDC foreign representation with a view to ensuring that EDC has the flexibility required to have a greater presence in emerging markets. In addition, the Government of Canada will soon introduce new measures to enhance EDC’s ability to make strategic equity investments and encourage greater participation by small and medium-sized Canadian businesses in emerging-market opportunities. Regulatory amendments will give EDC greater flexibility to invest in international partnerships, thereby creating opportunities for Canadian firms to expand the scope of their international business.

Recommendation 3

Because many countries view close government-to-government relationships as fundamental to building closer economic ties, the Government of Canada and Canadian Parliamentarians should ensure that there are frequent, focussed and well-planned visits to and from priority markets. The House of Commons Standing Committee on International Trade should be actively involved in these visits.

Response

The Government of Canada agrees that focussed and well planned visits by Parliamentarians to priority markets can play a critical role in promoting greater awareness and engagement on Canada’s trade interests and priorities.

The Government also agrees that government-to-government relationships are fundamental to building closer economic ties and to the promotion of democratic principles of good governance. The work of Canadian Parliamentarians can strengthen these ties.

The mandate and means to travel is strictly the purview of the Parliamentary Committees, with the approval of the House of Commons. The Department of Foreign Affairs and International Trade will continue to assist the Standing Committee on International Trade and Members of Parliament with their approved travel plans.

It is also worth noting other initiatives led by the Department of Foreign Affairs and International Trade that enhance Parliamentarians diplomacy and engagement in international fora. Parliamentarians will continue to be an integral and active members of Canadian Governmental delegations to trade ministerial conferences. We will support initiatives sponsored by the Inter- Parliamentary Union (IPU) and the Inter-Parliamentary Forum of the Americas (IPFA). Recent departmental cooperation with IPFA, for example, resulted in trade knowledge seminars aimed at enhancing the capacity of parliamentarians to work with constituents, business, and civil society in the formulation of national and international trade policy.

Recommendation 4

Government of Canada should complete free trade negotiations with the European Free Trade Association, the Central America Four, Singapore, and South Korea as quickly as is practical.

Recommendation 5

Recognizing that Canadian businesses have been shut out of some markets because competing countries have preferential trade agreements in place and Canada does not, the Government of Canada should determine in which countries Canadian businesses are operating at a disadvantage with respect to their major competitors, and then negotiate “defensive” free trade agreements that prevent Canada from being shut out of those markets.

Recommendation 6

The Government of Canada should continue to consult with Canadian businesses, unions and civil society organizations active overseas to determine where Canada’s “proactive” trade interests lie, that is, where Canada would most benefit from improving two-way market access. The Government of Canada should then aggressively pursue trade deals with countries considering those assessments. At the same time, since the reputation of Canada as a whole is affected by the activities of Canadian companies abroad, the Government of Canada should also ensure that the businesses and unions with which it consults (i.e., those active overseas) are acting in a socially responsible manner.

Responses (to Recommendations 4, 5 and 6)

The Government notes that recommendations 4, 5, and 6, relate for the most part, to Canada's bilateral and regional free trade agreement (FTA) agenda.  However, the Government notes that Canada must use the full suite of domestic policies and negotiating tools at its disposal to create the conditions for Canadian success abroad. As such, the following response addresses the FTA elements of those recommendations.

The Government concurs with the Committee that Canada must successfully conclude, where possible, FTA negotiations currently underway, and that Canada should pursue new FTAs whether to create new opportunities for Canadian business or to level the playing field in foreign markets.

As a trade oriented and globally integrated economy, Canada benefits from a healthy, open, transparent and rules based international trading system. While the World Trade Organization (WTO) remains the cornerstone of Canada's trade policy, bilateral and regional FTAs represent an important facet of Canada's overall international trade agenda. Canada's regional and bilateral FTAs are a means to secure markets for Canadian business, to gain better access to lower-cost goods and services, and to strengthen rule making. Regional and bilateral agreements can also have important collateral benefits, such as building common understanding among parties that can be effective in forming alliances to move forward our mutual interests in other fora.

Over the past number of years, the United States, Mexico, Japan, and China, to name a few, have expended considerable effort and resources to the negotiation of bilateral and regional free trade deals in key markets. Since 2001, the United States alone has signed or concluded FTAs covering 16 countries, while Canada has completed none. As such, the Government recognizes that, as an export-oriented and globally-integrated economy, it would be a costly mistake for Canada to sit on the sidelines at a time when key trading partners are actively securing preferential trade agreements. We must renew Canada's bilateral and regional FTA agenda so that Canadian businesses can fully participate and compete in the global marketplace. In this context and as highlighted in Advantage Canada and Budget 2007, the Government is working to reinvigorate its FTA agenda through the Global Commerce Strategy a strategy that seeks to enhance support for the negotiation of FTAs to prevent Canada from being shut out of markets, and maintain our competitiveness abroad.

The Government agrees that Canada must conclude, where possible and as quickly as practical, FTA negotiations with the EFTA countries (Iceland, Liechtenstein, Norway and Switzerland), the Central America Four (El Salvador, Guatemala, Honduras and Nicaragua), Singapore, and South Korea. Concluding these FTAs will bring specific advantages for Canadians. While negotiations with the Central American Four, South Korea, and Singapore are ongoing, the Government announced, on June 7, 2007, the conclusion of negotiations with the EFTA states. Work is now underway to complete the legal review and sign the agreement in the near future. The agreement with EFTA will improve access to wealthy and sophisticated markets, as well as increase mutual investor awareness. Concluding the FTA negotiations with the Central American Four will restore Canada's competitive position, particularly for our exporters to that region whose products are being displaced by the Central America U.S. FTA. The conclusion of FTA negotiations with Singapore, a growing regional hub in Asia, will generate benefits for Canadian service providers and investors in particular. An FTA with South Korea, Canada's 7th largest trading partner and an important player in global value chains, will represent the largest trade deal since the NAFTA and has the potential to deliver benefits across a wide range of the Canadian economy, from agriculture to high tech goods and services.

In addition to these FTA negotiations, the Government is committed to pursuing new trade deals to better position Canadian business vis-à-vis international competitors by levelling the playing field in global markets. For instance, Canada is committed to achieve free trade with the countries of the Andean Community, the Dominican Republic and the Caribbean Community (Caricom). On June 7, 2007, the Government announced the launch of FTA negotiations with the Andean Community countries of Colombia and Peru, and with the Dominican Republic. The first meetings took place in July and a strong pace was set for future rounds of negotiations. In addition, Prime Minister Harper launched, on July 19, 2007, FTA negotiations with Caricom during his visit to Barbados. Also, on July 13, 2007, Canada and Jordan agreed to commence a study into the feasibility of a FTA with a view to beginning negotiations in 2008. Consistent with the recommendations of the Committee, the Government will launch a broad-based consultation process with provinces, territories, businesses, and other interested stakeholders, seeking views on the various elements of a possible FTA with Jordan.

Beyond these countries, various factors will be considered in selecting potential future FTA partners, including Canadian business interests and potential economic benefit to Canada, the ability to manage risks, as well as the willingness and capacity of potential partners to engage in talks in Canada. Stakeholder input will continue to be integral in assessing these factors as Canada moves forward with a reinvigorated FTA agenda.

Recommendation 6 also points to the importance both the Standing Committee and the Government place on consulting Canadian business and unions regarding Canada’s international trade and investment priorities and interest. Working with all levels of government, the Government of Canada intends to continue its broad based approach to elicit the views of business and industry, the academic research community, and interested citizen-based organizations and public interest groups, through both formal and informal mechanisms. More information on both the range of issues under consultation by the Government is readily available on the Government of Canada web site at http://www.international.gc.ca/tna nac/consult-en.asp.

Parliamentarians must play a critical role in this process. Canadians’ ability to communicate directly with elected officials is the key to an informed debate in any public policy, and in promoting greater transparency and engagement on Canada’s international trade priorities and interests. The work of the Standing Committee, in particular, has provided important insights and considered recommendations to the development and refinement of Canada’s trade agenda, building on the observations and testimony of witnesses that represent Canada’s diversity.

The Government also recognizes the undeniable role of Canadian business in the sustainable economic development of the countries and the communities in which they operate. Canada expects its firms operating abroad to uphold local laws and international norms and standards, and to observe and fulfil the international commitments to which Canada is signatory. Moreover, Canada encourages and supports Canadian businesses’ compliance to voluntary codes of conduct or guidelines of socially responsible behaviour, notably the OECD Guidelines for Multinational Enterprises. Our network of missions abroad continue to work with Canadian clients to encourage them to integrate socially responsible practices in their overseas operations.

Throughout 2006, the Government held a series of National Roundtables on Corporate Social Responsibility (CSR) and the Canadian Extractive Industry in Developing Nations to explore how to better enable this sector to better manage the social and environmental risks of their operations overseas. The outcomes and recommendations of the report point to measures that, working together, the Government, industry, financial institutions, the investment community, pension funds, and civil society can take to enhance the CSR performance of Canadian extractive sector in developing countries. The Government of Canada is currently reviewing these recommendations, and formulating its response.

On February 10, 2007, the Government announced its support for the Extractive Industries Transparency Initiative (EITI). EITI is a coalition of governments, industries, investors and international and non-governmental agencies, which supports improved governance on resource-rich countries through the full publication and verification of company payments and government revenues for oil, gas and mining industries. The aim of the initiative is to ensure that revenues from natural resources result in greater government spending on health, education and other priorities key to the initiative’s goal of reducing poverty, promoting democracy and reducing the risk of conflict. The EITI initiative also makes oil, gas and mining activities more transparent by publicizing payments and revenues. Canada’s support includes a contribution of $750,000 to the EITI Multi-Donor Trust Fund, as well as annual, ongoing funding of $100,000.

Recommendation 7

The federal government should develop and start to implement comprehensive strategies on Canada’s commercial relations with China and India, including the conclusion of Foreign Investment Protection and Promotion Agreements prior to the negotiation of a bilateral free trade agreement with each country. These strategies should also include consideration for human rights; more aggressive promotion of Canada and Canadian products; and greater involvement of the Chinese and Indian diasporas in Canada.

Response

The Government of Canada agrees that integrated and comprehensive strategies are necessary to guide Canada’s broader engagement in key markets. Specific market plans for China and India, as well as other markets holding great potential for Canadian business are being developed through extensive consultation within all levels of government, with academic and sectoral experts, and with Canadian business and industry representatives, including bilateral business associations with invaluable economic and cultural links to key markets, such as the Canada-China Business Council, among others. These plans identify strategic priority sectors and opportunities for Canadian companies based on the market opportunities identified, Canadian capabilities, and Canadian interest in the market, and draw upon the extensive commercial experience and client knowledge of the range of government departments, agencies and Crown Corporations.

While commercial considerations drive these assessments, Canada also recognizes the importance and the potential for mutual reinforcement between economic growth, the rule of law, trade and human rights. Canadian values and principles of corporate social responsibility and sustainable business development are fundamental considerations in developing the market plans. Again, federal government departments and agencies work together, and with their provincial-territorial counterparts, to identify and take into account a range of political and foreign policy factors in the development of market priorities.

Canada’s Foreign Investment Protection and Promotion Agreements (FIPAs) contain provisions that cover health, safety and environmental measures, as well as reflect the commitment to transparency for the settlement of investor-state disputes.

The Government wants to continue to build strong commercial partnerships with China and with India where partners are willing. On June 16, 2007, Canada and India announced the conclusion of a Canada-India FIPA. The Government will continue to enhance commercial relationships with China and India.

Recommendation 8

In future free trade negotiations, the Government of Canada should consider studying and possibly adopting the Mexican negotiating model in which agreements are signed without necessarily resolving all sensitive issues and where Canadian interests are protected through the exclusion of certain sectors from negotiations. If Canada were to use such a negotiating model, then as the relationship grows, these concerns could be addressed in subsequent contact between the two parties. The Mexican model should not be employed in cases where Canadian businesses would be put at a disadvantage relative to their major competitors by a free trade deal.

Response

The Government of Canada agrees that consideration of various negotiating models and approaches is useful, with a view to adapting or adopting those elements that may serve Canada’s interests, in accordance with our commitments under international law.

Canada negotiates free trade agreements consistent with our World Trade Organization (WTO)-obligations, and that address the broad range of Canada’s economic and commercial interests. WTO rules governing bilateral and regional trade agreements require developed-nation members’ FTAs to cover “substantially all trade” between the FTA partners. Excluding a sector from an FTA could risk the agreement being non-compliant with international trade obligations. WTO disciplines do, however, currently permit developing countries to derogate from this requirement by affording differential and more favourable treatment in this regard.

In any case, Canada has a broad range of economic interests to address in free trade negotiations - ranging from agriculture and non-agriculture export interests to services and investment. It has been Canada’s long-standing policy to include no non-agricultural exemptions from tariff elimination in our FTAs. Carving out sectors could lead to less comprehensive FTAs that would not necessarily serve Canada’s broad commercial interests. However, the Government does work to address the concerns of sensitive sectors by developing negotiating strategies that may include, among others, the negotiation of longer tariff phase-outs periods, and safeguards. Like many other WTO Members, Canada has adopted a more flexible approach to FTA coverage of agricultural trade, by, for example, retaining the rate of duty in place for over-quota imports of supply managed agricultural goods.

At the same time, Canada's FTAs are not static: they can evolve to respond to the needs of business. The recently-concluded negotiations of a government procurement chapter and a financial services chapter in the context of the Canada-Chile FTA are but two examples.

Recommendation 9

The Government of Canada should immediately open negotiations on Foreign Investment Protection and Promotion Agreements (FIPAs) with Indonesia, Vietnam and Colombia. It should also negotiate FIPAs with other countries, after consulting with businesses to determine where investment protection and promotion agreements would be beneficial.

Response

The Government of Canada agrees. Canada needs better coverage of Canadian outward investment in the developing world. The Government’s plan is to extend this coverage by completing ongoing negotiations as quickly as possible, and launching new negotiations with priority countries in the short-to-medium term.

Priority countries for future negotiations will be selected on the basis of economic and commercial factors, including an assessment of likelihood of securing a high standard agreement that would be consistent with our objective of securing for adequate protection for Canadian investors and investments abroad.

Information regarding FIPA negotiation is kept up-to-date on the Government web site and regular contacts are maintained with national business associations and Canadian investors abroad to help inform the negotiating process. The Government has undertaken exploratory discussions with Indonesia and Vietnam, both identified as priority countries. As noted in the Government’s Response to Recommendation 5, Canada announced the launch of FTA negotiations with Colombia on June 7, 2007 which that would include an investment chapter.

Recommendation 10

The Government of Canada should expand its network of air services agreements around the world, including with Singapore.

Response

The Government of Canada agrees. Canadian consumers, businesses and air travel industry players can benefit from increased choice of air services, flexible rules for pricing and improved market access authority that air services agreements can provide.

Canada has recently expanded its network of air services agreements by concluding new agreements with Jordan, Iceland, New Zealand, Algeria, Croatia, the State of Kuwait, and Serbia. Canada has also negotiated the expansion of existing agreements with key emerging markets such as China and India, with those countries representing significant bilateral passenger traffic such as the United States, the United Kingdom and Japan, as well as with other important bilateral markets, such as Greece, Ireland and Portugal.

The Government will continue to seek opportunities to work with partners to expand Canada’s bilateral air services agreements. In the coming months, negotiations are expected to take place with Singapore and other key partners. In addition, Canada has recently held preliminary discussions with the European Commission for the possible development of a comprehensive air services agreement between Canada and the European Union (EU). At the present time Canada has bilateral air services arrangements with 19 EU Member States; a comprehensive agreement would create a framework for air services between Canada and all 27 EU Member States, and create an air transport relationship with countries where Canada currently has no bilateral air service arrangement.

Recommendation 11

Building on the progress made during its Trade and Investment Enhancement Agreement (TIEA) negotiations with the European Union (EU), the Government of Canada should negotiate a regulatory cooperation agreement with the EU that will remove non-tariff technical trade barriers facing Canadian businesses in that market.

Response

The Government of Canada agrees that: regulatory cooperation with the European Union (EU) is a priority issue and is key to ensuring that Canadian businesses remain competitive in this important market and is committed to work on this issue despite the Trade and Investment Enhancement Agreement (TIEA) being paused since May 2006 pending the outcome of the World Trade Organization (WTO) talks. Addressing non-tariff barriers to trade will help to level the playing field for Canadian businesses in the EU.

The Global Commerce Strategy recognizes that addressing non-tariff barriers to trade will help to level the playing field for Canadian businesses in key markets such as the EU. It is important to note that there are a number of Canada-EU regulatory cooperation initiatives underway currently, including under the auspices of the Canada-EC Framework for Regulatory Cooperation and the Canada-EC Veterinary Agreement.

During the June 4, 2007, Canada-EU Summit in Berlin, the EU and Canada agreed to intensify work on regulatory co-operation, which makes a crucial contribution to the strengthening of trade and investment relations. To this end, the two sides reinforced their commitment to fully implement the existing Framework for Regulatory Cooperation and Transparency by endorsing the Regulatory Cooperation Roadmap of sectoral initiatives, and identifying and implementing ambitious results-oriented co-operation initiatives. Further, Leaders call upon EU and Canadian regulatory authorities to enhance regulatory compatibility and convergence by considering each others’ measures before adopting unique approaches. The EU and Canada commit to concluding a Regulatory Co-operation Agreement, addressed under the TIEA, as soon as possible.

Also during the Summit, the EU and Canada agreed to co-operate on a study to examine and assess the costs and benefits of a closer economic partnership. This study will examine the existing barriers, especially non-tariff, to the flow of goods, services and capital, and estimate the potential of removing such barriers. The study will also identify how such a partnership could complement ongoing efforts to enhance our bilateral cooperation in areas such as science and technology, energy and the environment. Leaders will review the results of this study at the 2008 Canada-EU Summit with a view to pursuing balanced and closer future EU-Canada economic integration.

Recommendation 12

Recognizing the benefit from the expanded access to global markets that a successful Doha Round could secure, the Government of Canada should take a leadership role in ensuring the completion of a broad and ambitious outcome to the current World Trade Organisation negotiations.

Response

The Government of Canada agrees. A successful, broad-based and ambitious outcome to WTO Doha Round remains Canada’s main trade policy priority.

Canada is engaged across all negotiating areas to advance the Round, and our overall objectives. We want an ambitious outcome that: creates a more level playing field for the agriculture and agri-food sector while defending the interests of our supply-managed industries; increases market access for goods and services while defending the interests of our supply-managed industries; provides improved and clarified rules on trade remedies and strong, binding rules on trade facilitation; and secures a development outcome that provides real benefits to developing countries, particularly to lesser-developed countries, and further integrate them into the multilateral trading system.

Canada provides leadership in the Doha Round negotiations through our active participation in the core senior officials process and key groupings, such as the Cairns Group of agricultural exporters, and within key negotiating areas in groups such as the “Friends of Services”.

Canada's Ambassador to the WTO serves as Chair of the Non-Agricultural Market Access (NAMA) negotiations. He has also served as Chair of the Enhanced Integrated Framework process, an initiative to support the efforts undertaken by Least Developed Countries (LDC) to integrate trade into their development plans, and as a member of the Aid for Trade Task Force, which examined how Aid for Trade might contribute most effectively to the development dimension of the Doha Round.

Recommendation 13

Canada should continuously push forward the agenda of the Security and Prosperity Partnership, thereby aggressively working towards the removal of as many obstacles to a seamless movement of goods and services across North America as possible, with greater public oversight and transparency.

Response

The Government of Canada agrees. Work is under way with NAFTA partners under the Security and Prosperity Partnership (SPP) of North America to build a safe and trade-efficient border. The SPP is a commitment by Canada, the United States and Mexico to work together to build a safer and more economically dynamic North America. The SPP includes funding for new programs that will expedite the movement of legitimate trade and travel and increase predictability at the border for the benefit of Canadian industry, both exporters and importers. Another element of the SPP is enhancing and streamlining regulatory processes in North America to lower costs, minimize barriers and increase trade.

As indicated in the Government of Canada’s Response to the Fifth Report of the Standing Committee on Industry, Science and Technology, the multi-layered nature of security protections at border crossings has a material impact on the efficiency and cost of trans-border trade. Through its initiatives, the SPP serves as an important mechanism to ensure more secure and efficient transportation of goods, people and services across our borders.nding Committee’s recommendations, and those from the Parliamentary review of the Anti-terrorism Act.

The SPP is a transparent and open process, with work plans and priorities that are shared with the public. To leverage the expertise of the private sector to enhance North American competitiveness, the leaders of Canada, the United States and Mexico established the North American Competitiveness Council (NACC) in March 2006. Through the NACC, senior business representatives from the three countries are able to share their perspectives on broad issues related to the prosperity and competitiveness of North America. Their report to the Leaders of the three countries was made public in Ottawa at the SPP Minister’s Meeting in February 2007. Progress of ongoing cooperation under the SPP will be reviewed at the upcoming North American Leaders’ Summit on August 20 and 21, 2007 in Montebello, Quebec.

The Government also consults with key stakeholders to take advantage of their expertise on initiatives. The majority of this outreach occurs through these SPP working groups.

Recommendation 14

The federal government should undertake effective intellectual property enforcement to keep counterfeit and pirated products from entering Canada and from being transhipped through Canada to our trading partners.

Response

The Government of Canada concurs. Trade in counterfeit and pirated goods is a global problem which affects all countries. The Government of Canada is committed to finding solutions to this problem, both internationally and domestically.

Canada actively contributes to the development of strategies in a number of international fora, such as the G8, the Organisation for Economic Cooperation and Development (OECD), the World Trade Organisation (WTO), the Asia-Pacific Economic Cooperation Forum (APEC), the World Intellectual Property Organisation (WIPO), the World Customs Organisation (WCO) and Interpol. Information exchange (including the sharing of best practices across jurisdictions) better coordination between border and law enforcement agencies and technical assistance to developing countries are among the topics addressed.

The Government is also examining options to enhance Canada's approach to the enforcement of intellectual property rights, especially at the borders. We also engage and partner with industry groups to raise awareness and understanding of the issue, and its associated economic and health- and-safety impacts.

Recommendation 15

The Government of Canada should modernize and strengthen its infrastructure, tax, regulatory, human resources, innovation, and other domestic policies to ensure that Canadian companies are as well positioned as they possibly can be to compete in the global economy.

Response

The Government of Canada agrees, and recognizes that building a stronger economy and achieving higher living standards requires establishing the right conditions for Canadian businesses to grow and prosper. Our long-term economic plan – Advantage Canada – sets the course for Canadian businesses to succeed domestically and internationally by committing to create five Canadian advantages:

• Tax Advantage: Reducing taxes for all Canadians as well as establishing the lowest tax rate on new business investment (as measured by the marginal effective tax rate (METR)) in the G7.
• Fiscal Advantage: Eliminating Canada’s total government net debt in less than a generation.
• Entrepreneurial Advantage: Creating a business environment that unlocks private investment by reducing taxes, unnecessary regulation, and red tape.
• Infrastructure Advantage: Building modern infrastructure to ensure the seamless flow of people, goods, and services.

The Government has already taken important steps towards achieving these Canadian advantages, including: lowering personal income taxes and improving work incentives for low-income Canadians; lowering business taxes; reducing government debt; addressing tax compliance and regulatory burden; strengthening post-secondary education; and making historic investments in infrastructure.

The Government will continue to work towards fulfilling the commitments set out in Advantage Canada by building on the progress achieved in Budget 2007 and other recent initiatives.

Recommendation 16

The Government of Canada should take steps to ensure that federal tax rates on Canadian businesses are competitive with those of other leading industrialized nations. The setting of these tax rates should take into account the substantial competitive advantages of the Canadian health care system and other social programs.

Response

The Government of Canada recognizes that creating a Canadian Tax Advantage will allow Canada to attract and retain business investment. The Government is committed to building a business tax advantage – grounded in a tax system that is internationally competitive. Since coming to office just over a year ago, the Government has taken significant action to improve the competitiveness of Canada’s corporate tax system. Budget 2006 and the Tax Fairness Plan enhanced corporate tax competitiveness by:

• reducing the general corporate income tax rate to 18.5 per cent from 21 per cent by 2011;
• eliminating the corporate surtax for all corporations in 2008; and,
• eliminating the federal capital tax in 2006.

Budget 2007 went further by providing assistance for Canada’s manufacturing sector and aligning capital cost allowance rates with useful life for manufacturing buildings, computers, and other assets.

Taken together, Canada will establish a solid corporate statutory income tax rate advantage over the United States in 2011. In addition, Canada will also achieve a meaningful Marginal Effective Tax Rate (METR) advantage on new business investment over the United States, and will move from the third highest to the third lowest in the G7 in 2011.

The Government recognizes the importance of taking further action to lower taxes so that Canadian businesses can effectively compete internationally. This is why the Government committed in its new economic plan – Advantage Canada – to make Canada’s overall tax rate on new business investment the lowest in the G8.

Recommendation 17

The federal government should take a leadership role and work in collaboration with provincial and territorial governments to establish a barrier-free internal market by the end of 2008.

Response

The Government of Canada agrees. At the Committee on Internal Trade meeting in September 2006, Ministers agreed to an April 2009 deadline for full labour mobility across Canada.

The Agreement on Internal Trade (AIT) has resulted in progress in eliminating barriers and irritants to the movement of persons, goods, services, and investments within Canada. Improvements have been made in key areas of procurement, labour mobility, consumer related standards and measures, transportation and environment.

In particular, the Government of Canada will work with interested provinces and territories to examine how the Trade, Investment and Labour Mobility Agreement (TILMA), signed by the Governments of Alberta and British Columbia, could be applied more broadly to reduce interprovincial barriers to trade and labour mobility across the country.

The remaining barriers are within provincial jurisdiction, and their concerns must be respected. Currently, federal, provincial and territorial governments have placed a priority on addressing labour mobility issues, including those dealing with foreign credential recognition. We will continue to work collaboratively with other levels of government on this and other initiatives to strengthen Canada’s economic union and reduce internal trade barriers.

Recommendation 18

Given the increasing importance of lower-cost imports in the Canadian production of goods that are subsequently exported, the Government of Canada should study the feasibility and the consequences of unilaterally eliminating its remaining industrial tariffs.

Response

The Government of Canada agrees. Canadian businesses are increasingly dependent upon imports to produce and provide value-added goods and services. The availability of competitively-priced inputs and capital goods is key to ensuring that our industries remain innovative and competitive in both domestic and foreign markets.

Advantage Canada, the Government's long-term economic plan, highlights the need to create a competitive business environment that provides Canadian businesses with a tax and entrepreneurial advantage.

Many of Canada's remaining tariffs could be significantly reduced or eliminated in the context of the WTO Doha Round of trade negotiations, or through the negotiation of free trade agreements.

In addition, the Government is currently examining Canadian tariff policy with a view to enhancing competitiveness.

Recommendation 19

The federal government, as part of its next legislative review of Export Development Canada, should consider providing that agency with the authority to also finance imports that are critical to Canadian exports.

Response

The Government of Canada agrees. An assessment will be undertaken on the extent of the role EDC could play in financing imports critical to Canadian exports, given that the current legislative and regulatory framework relating to facilitating imports and other requirements of the global supply chain is complex, and unclear. The Government notes that EDC can finance imports now, but such imports must be directly linked to an export contract, a requirement that can be difficult to establish in the context of complex supply chains.

Recommendation 20

The Government of Canada should immediately review its trade remedy system to ensure that critically valued imports, needed as inputs by companies who subsequently export products out of the country, are not unnecessarily blocked.

Response

The Government of Canada agrees that Canada's overall trade remedy policies, laws and practices should be reviewed periodically, and notes that in order for Canada to remain competitive in a rapidly changing international trade environment, its trade remedy laws must protect Canadian businesses when warranted, while ensuring that Canadian businesses have stable and predictable access to global supply chains.

Canada's trade remedy laws implement Canada's rights and obligations under the relevant World Trade Organization (WTO) agreements. The international rules pertaining to the taking of anti-dumping and countervailing measures are currently under negotiation to clarify and improve them as part of the Doha Round of multilateral trade negotiations. Although the last trade remedy review was completed in 2000, the Government has consulted extensively with Canadian stakeholders to obtain their views on these matters and to ensure that the Government’s negotiation position reflects the changing needs and objectives of Canadian businesses and consumers. Canada ensures that all interested stakeholders are apprised of developments via the Government’s Trade Negotiations and Agreements web site at http://www.international.gc.ca/tna-nac/TG/rule-en.asp

Recommendation 21

The federal government should immediately develop and implement clear and comprehensive strategies to (a) generate more foreign direct investment inflows and outflows and (b) strengthen international trade and investment in services.

Response

The Government of Canada agrees. The importance of foreign investment and its implications for Canada's continued prosperity were affirmed in the November 2006 Economic and Fiscal Update, Advantage Canada. Foreign direct investment provides additional capital to fuel firms' growth and exposes domestic firms to new technologies, innovative ways of doing business and healthy competition. Canadian direct investment abroad (CDIA) allows Canadian firms to be integrated into global supply chains, be more productive and competitive, and ultimately to create more and better jobs here in Canada.

To facilitate CDIA, the Government is pursuing a two-pronged approach. First, it is re-orienting its service platform to provide the market intelligence and support that are key to the success of Canadian firms seeking outward investment opportunities, whether to penetrate markets, acquire technologies, secure supplies, or integrate more securely into value chains. Second, as outlined in its response to Recommendation 9, the Government is working to extend the protection afforded to Canadian outward investors by negotiating additional Foreign Investment Protection Agreements with priority countries. This will assist Canadian companies to take advantage of opportunities abroad while mitigating risks.

In addition, Export Development Canada (EDC) has been supporting the investment activities of Canadian companies for many years, originally under its Political Risk Insurance program and more recently with financing. Building on this base, EDC has in place a strategy to expand its CDIA support for Canadian business investing in foreign markets to facilitate their participation in global supply chains and networks. This strategy is focussed on extending existing programs to a broader base of customers, increasing support for international acquisitions and expansions and, providing services for foreign affiliates of Canadian companies. EDC aims to tailor its investment services to help more companies of all sizes, especially in large emerging markets.

Given the substantial advantages that FDI offers Canada, the Government of Canada implemented a new proactive FDI promotion strategy on April 1, 2007, to ensure that the Canadian advantage is recognized world-wide where it counts. Specifically, the strategy targets priority manufacturing and service sectors where Canada has clear competitive advantages, and where proactive promotion and attraction activities will make a difference. The federal government also works with provincial, territorial and municipal partners to provide "aftercare" services to investors already in Canada and to encourage re-investment. Specific strategies for FDI promotion and attraction efforts in key FDI source markets are currently being developed, and will be integrated into the overall market plans for promoting Canada’s commercial interests in those markets.

The Government also recognizes the importance of strengthening services trade flows. The Canadian economy has seen a broad shift towards services in the past few decades, and this domestic evolution is increasingly being reflected in international commerce.

Increasing opportunities for services exporters and investors is therefore a priority for the Government of Canada. Canada is playing an active role in services negotiations in the World Trade Organization (WTO) and vigorously pursues services liberalization in bilateral and regional trade agreements. Facilitating increased Canadian services trade (cross border transactions, FDI related foreign affiliate sales and the services transactions of independent professionals and contractors working in other countries) will yield direct benefits to Canada in job creation, improved productivity and greater innovation and business activity. The Government is working to obtain improved market access for sectors such as financial, telecommunications, transportation, distribution, courier, professional, research and development, management consulting, oil and gas, mining, environmental, computer and related, and tourism and travel related services.

In addition, services trade negotiations can provide important insights with respect to international “best regulatory practices” in a regulatory context that can be helpful as Canadian regulators work to improve the regulatory environment for services. Finally, liberalization of services trade (in other markets and here at home) can provide access to a greater range of enabling services (e.g., transportation and distribution, information and communications, financial and professional), which are critical to the efficiency of production and exports in Canada’s more traditional manufacturing and primary sectors.

Recommendation 22

All of the above recommendations should be implemented taking into consideration the importance of democratic debate on issues contained in the report; the quality of life of all Canadian families and closing the prosperity gap; and the importance of working to raise social, labour and environmental standards, both in Canada and internationally with our trading partners.

Response

The Government of Canada believes that strong and robust domestic economic policies accelerate the virtuous cycle of social stability and safety nets; foster an educated and engaged civil society; and broaden the individual citizen’s and consumer’s choices. Prosperous national economies are better able to contribute to global stability and to good governance.