Prosperity, Freedom and Security: Renewing Canada’s Commitment to Multilateral Trade Liberalization

May 1, 2003

WORLD TRADE POLICY AT THE CROSSROADS

The world is at a crossroads in trade policy. We can take the road to greater liberalization and harmony in multilateral relations, or we risk moving back into a world governed by power politics. For a smaller, trade-dependent economy like Canada, the preferred path is obvious. Only a multilateral rules-based system can provide the predictability and security that Canadian businesses need in order to flourish both at home and in the global economy. And especially at a time when sharp divisions on issues of security are undermining the effectiveness of other international institutions, it is vital to demonstrate that the multilateral path is indeed the best way to advance the human condition around the world.

As members of the Canadian Council of Chief Executives, we affirm our commitment to forging Canadian positions that will both reinforce our country’s economic competitiveness within the global economy and enhance Canada’s contribution as a member of the global community. We therefore strongly support the multilateral trading system through the World Trade Organization (WTO), the objectives of the WTO’s Doha Development Round and the successful conclusion of an ambitious ministerial meeting in Cancún, Mexico in September 2003.

As Canada’s senior business voice on public policy issues within Canada and globally, the Council (formerly the Business Council on National Issues) has always been a staunch supporter of trade liberalization and of a strong role for Canadians in the global economy. Over the past 20 years, this has put our member companies and the Council in the forefront of active support for initiatives such as the Uruguay Round negotiations that led to the creation of the WTO, the Canada – United States and North American free trade agreements, and more recently other trade initiatives such as APEC and the Free Trade Area of the Americas (FTAA).

This statement by the Council takes this commitment forward to the new round of multilateral negotiations, and outlines our recommendations for Canadian action within what is formally known as the Doha Development Agenda.

Some of our member companies have already contributed views to governments on the Doha negotiations, either directly or through trade associations. This paper is not intended to replace views that individual member companies have or may contribute directly or through sectoral associations. Rather it reflects an overall consensus of business leaders on Canada’s priorities and the strategy that should be adopted for this highly complex negotiating process.

WHY THE MULTILATERAL PROCESS MATTERS

Multilateral trade negotiations deal with highly complex issues of the greatest importance, and real progress often appears glacial. The multilateral process matters a great deal, however, to Canadians and to people around the world. Meaningful public discussion about its consequences is therefore critical.

In raw economic terms alone, trade is vital to global prosperity and growth. In 2001, world exports of goods and services accounted for almost one quarter of global GDP. Trade flows are even more important to Canada’s economy. Total imports and exports represent nearly 80 percent of Canada’s GDP and exports have been a major component of growth in recent years.

Trade issues, however, can no longer be considered in isolation. The multilateral trade agenda now has a fundamental impact not just on the economy, but also on social progress and global security.

At its most basic level, freer trade stimulates economic vitality. There is no question, as Canada discovered through the Canada – United States and North American free trade agreements, that the transition to greater openness can bring challenges and disruption in the short term. Today, though, it is evident that these pressures prompted a transformation that has enabled our country to deliver the fastest economic growth and the most impressive job creation record in the G-7. From greater openness springs new opportunities that in turn hold the key to greater prosperity.

It is no coincidence that greater openness to trade is associated with greater openness in governance. Expanding flows of trade and investment are dependent on the rule of law. As developing nations have embraced democratic principles and practices, they also have enhanced their ability to attract private-sector investment — investment that represents the savings of millions of individuals around the world. And these investment flows have been far more effective than traditional foreign aid programs in building prosperity among the less fortunate of the world. Conversely, it is in countries where democratic development has lagged and which have therefore failed to attract either trade or investment that continued abject poverty remains most evident. Canada’s commitment to greater openness in trade therefore goes hand in hand with its commitment to spreading democratic values.

The ability of freer trade to spread prosperity worldwide is in turn the best guarantee of global security. One of the most damaging consequences of the terrorist attacks of September 11, 2001, has been to exaggerate the risks of openness — the risks both to short-term economic interests and to personal and national security. These risks are real; they are innate to freedom. Yet the economic security of rich and poor alike depends on the maintenance and expansion of the global flows of people, capital, goods and ideas. At the same time, the battle against terrorism will not be fought with weapons alone. The benefits that flow broadly around the world from the expansion of trade and investment flows have had, and will continue to have, a powerful positive impact on the world’s collective security.

Prosperity, freedom and security are interdependent and mutually reinforcing. As a trading nation, Canada has a profound interest in strengthening the multilateral rule of law and in continuing to expand opportunities for trade and investment worldwide. As a free and democratic nation, Canada has a fundamental duty to ensure that democratic development worldwide is reinforced by economic progress. And as a nation committed to global peace, Canada must pursue a multifaceted strategy that understands and takes advantage of the many links between economic and physical security. In this spirit, Canada must now make every effort to accelerate progress and to build a global consensus in the Doha Round of multilateral negotiations in the World Trade Organization.

Canadian governments since World War II have been in the forefront of building the global framework for trade cooperation, by sustaining an unprecedented level of political commitment to bringing new ideas and institutions to fruition. Today, this commitment must be renewed if Canada is to play a meaningful role in building a global framework to meet the challenges of the 21st century.

ACCELERATING THE DOHA PROCESS

Our first concern is not with any specific issue, but with the negotiating process itself. The fact is that the WTO and the Doha Round are under strain. The negotiations began in November 2001. Many important proposals have been advanced, but several deadlines for progress already have been missed. Further key deadlines are now upon us.

Our primary concern is not whether any specific deadline is met. The most important issues on the agenda are quite predictably the most complex and sensitive ones. They will take time to work through. What is essential, however, is to maintain a sense of urgency within the negotiating process and to make steady progress over time.

This year, the Fifth Conference of WTO Ministers will take place in Cancún, Mexico in September to review developments. The Council believes that the Cancún meeting will be decisive in determining the real level of ambition and the true scope of what is to be negotiated.

Success in setting the substantive agenda would rebuild the credibility lost through past failures to meet deadlines. Such success would also offer a needed boost to economic confidence at a difficult time for the international economy and would help to restore sagging faith in multilateral institutions and processes more generally. A failure of leadership in Cancún, on the other hand, would weaken confidence and undermine the credibility of the trading system, which in turn could cause serious damage to trade cooperation and further weaken global economic prospects.

There are two ways for Canada to work toward greater liberalization globally. One is to support efforts to foster liberalization on the broadest possible basis, through the WTO. The other is to drive progress through faster but narrower liberalization initiatives on a bilateral or regional basis. These paths are not mutually exclusive.

Canada has benefited greatly from bilateral free trade agreements such as those with the United States and Chile. These in turn have fostered broader negotiations and agreements such as the North American Free Trade Agreement and potentially a hemispheric Free Trade Area of the Americas. Put bluntly, Canada is a prime beneficiary of liberalization at all levels, and therefore should use all possible levers to drive progress: bilateral, regional and global.

At the multilateral level, the Council considers that only bold solutions are likely to provide the basis for an agreement that can really move matters forward. The Council notes that many ambitious proposals have already been made by WTO members, including the United States. In many key areas such as dispute settlement, antidumping, countervail, subsidies and agriculture, Canada can and must work with other members of the WTO to try and achieve an ambitious result and a successful conclusion to this round of multilateral negotiation.

The Council sees considerable scope in particular for working closely with our largest trading partner, the United States, in pursuit of the many objectives we share at the multilateral level. Such efforts in turn would reinforce the prospects of achieving other goals that the Council has identified for Canada, notably that of building a new security and prosperity partnership in North America.

CANADIAN PRIORITIES WITHIN THE DOHA AGENDA

The central focus of the negotiations is on improving market access for agriculture, services, and industrial products. In agriculture, the objectives include improved market access, further reductions in trade distorting support programs and the possible elimination of export subsidies. For industrial products, the United States, with support from others, has proposed the elimination of all duties.

Non-tariff barriers are often more significant instruments of protection than tariffs. Real negotiations are beginning and many ideas have now been put forward by participants for ending antidumping measures, subsidies and countervailing duties. While it is far from certain that actual negotiations on other issues will commence this fall, Ministers in Cancún will be called on to address the modalities for negotiations in the areas of investment, competition policy, trade facilitation, and transparency in government procurement. Managing the links between trade and protection of the environment will be on the agenda as well. Finally, Ministers will need to consider how to ensure that the results live up to the hopes of developing countries for the Doha Development Agenda that lies at the heart of this Round.

The Council’s initial views on the agenda are set out below. We may elaborate further on these ideas as the negotiations proceed. We offer our full cooperation to the Government of Canada and to Canadian negotiators in working towards these objectives. The Council is ready to work with other interested Canadians in developing approaches for advancing the Canadian position. The Council considers that this broad agenda may offer important opportunities for further steps to reform certain Canadian practices and thereby improve the prospects for our own domestic economic performance.

1. Industrial products. We support the long-term goal of creating a tariff-free world. Reducing tariffs has been the central goal of the multilateral process since the inception of the General Agreement on Tariffs and Trade after the Second World War. We strongly recommend that Canada now support the ambitious objective of eliminating all tariffs on industrial products. Such an agreement within the WTO would extend the degree of free trade Canada now enjoys within North America to its relations with other major trading partners such as the European Union and Japan.

New Zealand and the United States already have advanced proposals for the elimination of duties and have been supported by several WTO members, including some developing countries. The growing importance of trade among developing countries, and the fact that developing-country exporters now pay 71 percent of their tariff bill to other developing countries, shows that developing countries would reap major benefits from such duty elimination. Indeed, more than 40 percent of developing country exports now go to other developing countries, and the World Bank suggests that this figure could rise to 50 percent by 2005.

While the objective for reaching agreement on a negotiating plan for tariffs is the end of May, it is likely that the deadline will slip. Many developing countries still remain to be convinced that their interests would be served by an ambitious approach in this area. To help assuage their concerns, developed countries should set an example by taking the lead in opening their markets to exports from developing countries.

Moving to duty-free trade on a global basis would bring important benefits in simplifying the administration of trade. Rules of origin would become unnecessary, except in certain specialized situations. The whole process of valuing imports for duty would be dramatically altered as such valuations would be relevant only for the application of domestic taxes like value-added taxes. Investment decisions and sourcing decisions could be taken on the basis of an analysis of comparative advantage rather than on one of relative comparative regulatory complexity.

Canada has benefited greatly from free trade in industrial products within North America. The Council firmly believes that it could do so on a broader basis. We note as well that eliminating Canadian duties would further improve the provision of competitively priced inputs for Canadian production, and therefore would enhance Canadian competitiveness in the North American market and beyond.

While a negotiating process with a clear goal of eliminating all tariffs by an agreed date would be ideal, we would also support tariff elimination through other processes, whether reciprocal, country by country, formulaic or sectoral. One way or another, all remaining tariffs should be eliminated as quickly as possible and preferably before the end of the decade.

We therefore recommend that the Canadian government should work with others within the WTO to encourage the elimination of all tariffs on industrial products as part of the Doha Round. To this end, the Canadian government should help to develop appropriate transitional and other arrangements to encourage developing countries to sign on. Canada also should examine its own remaining tariff barriers and consider the costs and benefits of setting an example for the world through unilateral action or through action by a coalition of willing members of the WTO.

2. Agricultural products. Real progress in the reform of agricultural trade is central to progress in the Doha negotiations as a whole. The Council strongly believes that such reform is in the Canadian interest as well as in the global interest more broadly.

We favour the immediate elimination of export subsidies, and the elimination over time of import tariffs on agricultural products, tariff-rate quotas and trade-distorting domestic support. In addition, we favour the elimination of all forms of subsidy and support that won temporary exemptions during the Uruguay Round even though they were recognized as market distorting. The transition phase that was seen as necessary at the time is now over.

Efficient Canadian producers of agricultural products and food products more generally should be given the opportunity to compete effectively on export markets and grow within our domestic market without restriction – a freedom enjoyed by Canadian producers of industrial goods and many services. It is also time that subsistence farmers in developing countries were no longer required to compete on their own domestic markets with produce subsidized by the governments of rich countries.

Since many of the problems of agricultural trade are global in nature, viable solutions will need to be global as well. Progress in the WTO will in turn facilitate progress in bilateral and regional agricultural trade. We note, for instance, that a considerable number of trade disputes between Canada and the United States are in the agricultural area and we suggest that our two countries use the Doha negotiations to develop durable new approaches to eliminating the causes of such frictions.

We recommend that Canada focus its attention on assuring progress in agricultural trade rules in the multilateral context and if possible, bilaterally as well. In doing so, it will be essential for Canada to take a hard look at its own policies and practices, and to take action to ensure that these are compatible with its desire to benefit from liberalized trade globally, with the spirit of its international negotiating position and with its commitment to enhancing economic growth among developing countries.

3. Services. The Council has long supported efforts to extend the same disciplines affecting trade in goods to global flows of services, and the Doha negotiations offer an excellent opportunity to build on the existing WTO agreements in this area.

We favour ambitious efforts to liberalize services trade further, including banking, insurance and telecommunications services. We also support inclusion of other areas not previously covered by WTO disciplines, such as energy services.

It will be important to address the way in which domestic regulatory measures can constitute barriers to trade in services. We endorse liberalization across service sectors and therefore recommend exploring the possibility of developing horizontal approaches to deal with such measures. The principle of greater transparency in domestic regulation should be part of Canada’s negotiating agenda as well.

We hope that some developing-country concerns can be addressed, including those relating to the temporary movement of service providers. Such provisions are also of importance for many Canadian service providers in various markets. Canada therefore must explore ways to advance these interests without undermining the effective immigration controls necessary to ensure Canadian and global security. In the area of professional services, Canada should seek agreement on more effective mutual recognition or harmonization of licencing and certification standards and regulations.

We recognize the sensitivity of liberalization in services that are provided entirely or substantially by governments. In this regard, it may be helpful to clarify the definition and exemption of public services within the General Agreement on Trade in Services, but we do not believe that the framework contemplated within the multilateral process poses any risk to the ability of governments in Canada or elsewhere to manage vital public services such as health care and education. At the same time, we would suggest that the Canadian economy is extraordinarily well placed to take advantage of liberalized access for trade in services worldwide.

We recommend that Canada encourage an ambitious negotiating agenda to expand WTO coverage of trade in services and consider rules on subsidies as well as safeguard mechanisms. In support of such an agenda, the government should use the domestic regulatory review launched last year as part of the federal Innovation Strategy to examine all of its regulatory barriers to international flows of services and to determine what changes would be most effective in enhancing Canadian competitiveness within North America and globally.

4. Non-tariff barriers. As tariffs on many goods have been reduced globally, increasing attention has been focused on the role of non-tariff barriers in frustrating the goal of expanding flows of trade. Especially in connection with the goal of eliminating tariffs on industrial products, it will be vital that the Doha negotiations also address all other measures affecting access to markets for such products.

It will be particularly important to make sure that technical regulations, standards, sanitary and phytosanitary rules and other regulatory barriers are appropriately addressed. For example, labeling requirements put in place with little regard for the principles of sound science or greater collaboration are of increasing concern to the business community, as are regulations with respect to genetically modified organisms.

The international barriers being faced by our members are increasingly of a regulatory nature. There is no point in eliminating duties if those measures are simply replaced by other barriers that may be less visible and may present greater market access challenges and higher inherent costs for Canadian exporters than the original tariff barrier.

In this context, Canada has had a longstanding interest in seeing more effective discipline on the use of antidumping and countervailing duties and in reducing the use of export subsidies. The widespread use of such subsidies is especially damaging to smaller economies such as Canada that cannot compete with the treasuries of larger trading partners. Also, progress on these items multilaterally could be particularly useful in helping to resolve many of the most aggravating disputes that have arisen between Canada and the United States and in preventing a recurrence of such disputes in future.

We recommend that Canada give special attention in the Doha negotiations to measures that would improve the discipline on the use of countervail and antidumping measures and of export subsidies and work closely with other countries willing to support this goal. To bolster its position in these negotiations, Canadian governments should make a commitment to reducing subsidies within the Canadian economy. Such reductions would be useful not only in reducing trade frictions, but also in improving economic efficiency and fiscal integrity within Canada.

5. Dispute settlement. The WTO’s Dispute Settlement Understanding was a landmark achievement and has worked reasonably well since its inception. Its importance is demonstrated by the fact that member governments have invoked its provisions nearly 300 times in just over eight years. It has greatly improved the predictability of the WTO rules.

However, in a growing number of cases, compliance with the findings of panels and the appellate body is proving more difficult. It is disturbing that this development involves the major trading countries.

We believe that a successful conclusion to the overall negotiations will take some of the pressure off the dispute settlement system. In a world of sovereign states, we consider that a negotiated solution to problems is often preferable to an adjudicated one.

We support the Canadian government proposal on dispute settlement in its call for greater transparency, increased public understanding of the settlement system and reforms that would lead to more professional, experienced, impartial and independent panels.

The Doha conference launched separate negotiations to improve the Dispute Settlement Understanding, but progress thus far has been difficult. Many countries have made valuable proposals, and in our view the most important are those that would encourage more effective and timely compliance with findings.
We are concerned, for instance, that in an increasing number of cases, resorts to retaliation or threats of retaliation are failing to lead to compliance but are disrupting business flows unrelated to the dispute. We also share the concerns of some developing countries with respect to the costs and accessibility of the settlement system. The resulting uncertainties undermine support for the system among those innocent bystanders who are being adversely affected.

We recommend that Canada focus its immediate efforts on ensuring at least partial success in the negotiations to improve the Dispute Settlement Understanding prior to the deadline of May 31, 2003. As part of this effort, Canada should support a review of the use of retaliation as a tool for ensuring compliance and consider other possible ways of promoting this objective.

OTHER ISSUES TO BE ADDRESSED

6. Trade and investment. The Council has long been a supporter of strong international rules relating to investment. Canadian firms are increasingly involved as investors in other countries and therefore have a greater stake in a secure and predictable environment for foreign investment on a global basis.

We support a WTO agreement on multilateral rules for investment and a successful launch to negotiations on this front at the Ministerial meeting in Cancún. We would see great benefit to agreeing on a set of high quality basic rules establishing the principles of transparency, national treatment, and the right of establishment. We understand that progress in this area is of particular importance to the European Union and Japan. To the extent that agreement here would facilitate a more significant overall result in the negotiations, we would support it.

7. Trade and competition policy. We recognize that international trade and healthy domestic competition are mutually reinforcing. We also recognize that some issues of competition policy are of increasing relevance to the trade agenda as evidenced, for example, by the role of pro-competitive regulatory principles in the area of basic telecommunications. We think that it is vital for the Ministers in Cancún to make a firm commitment to beginning negotiations toward WTO disciplines in this area, but caution against expecting too much from the first negotiating attempt.

8. Trade and the environment. In Doha, WTO members agreed to address two sets of issues. The first concerns the relationship between WTO rules and the specific trade obligations set out in multilateral environment agreements (MEAs), while safeguarding the rights of WTO members not party to a particular MEA. The second concerns the reduction or elimination of tariffs and non-tariff barriers on environmental goods and services. We see merit in pursuing both of these issues, particularly efforts to enhance the ability of Canadian developers of environmentally advanced goods and services to access foreign markets.

We believe that Canada and Canadian firms have an important role in fostering the spread of environmentally sustainable development internationally. However, we do not see trade restrictions as either a necessary or effective means of environmental enhancement. Rather, progress is best pursued through multilateral cooperation on appropriate environmental policies and standards that are in turn based on sound science. Any proposal in Cancún to enlarge the negotiating agenda to include issues such as labeling requirements for environmental purposes should be treated with extreme caution, to ensure that such requirements are not misused as a form of hidden protectionism.

9. TRIPS (Trade-Related Intellectual Property Rights). The Council strongly endorses the WTO provisions dealing with intellectual property protection that, in our view, contribute to innovation and the development of strong brands which build consumer confidence.

We regret that it has not yet proven possible to reach agreement in the discussions launched in Doha with respect to the problem that could be faced by WTO members trying to make use of compulsory licencing under the TRIPS agreement when they have insufficient or no manufacturing capacities in the pharmaceutical sector. Delay in finding a solution to this highly charged issue is in no one’s best interest, but we agree that the solution will have to respect the key innovative role played by the research-based pharmaceutical industry.

With respect to the possibility of extending the discipline of geographic indications of origin beyond alcoholic beverages to other agricultural products, we would urge extreme caution. Any wholesale rewriting of the rules in this area would be unfair to many traditional users of names which originally may have had some geographic connotation, but where exclusive proprietarial use of that name would be unreasonable. We suggest that such decisions should be negotiated on a product-by-product basis.

10. Transparency in government procurement. An agreement in this area within the WTO would be an important step in reducing the major costs incurred through corrupt practices that thrive in a non-transparent environment. The Council strongly supports all efforts to reduce the scope for corruption and bribery in international transactions, and suggests that an agreement on greater transparency would contribute to the development of better corporate and public governance worldwide. We urge the Government to look for other opportunities to address these objectives in the WTO negotiations.

11. Trade facilitation. We see real value in efforts under this heading to reduce the costs in time and money by improving the transparency, non-discrimination and ease of customs procedures and other regulatory formalities.

Rigorous implementation of existing WTO agreements is essential, but we would also support practical efforts to make these agreements work more efficiently. We see this as a relatively non-controversial issue, but one of great importance to the business community, and we think that significant progress should be achievable as a positive outcome from the meeting in Cancún.

12. Special treatment and capacity building. We recognize the importance of ensuring that the Doha Development Agenda addresses the interests of developing countries. Developed countries should do this by addressing the real trade interests of these countries in the negotiations on market access and rules.

A case can be made for very generous treatment for the least-developed members of the WTO and for low-income developing countries. The more advanced developing countries, however, should increasingly be expected to make a full contribution to the trading system, and certainly should not retreat from any obligations already assumed in previous rounds.

Concentrating on the use of special and differential treatment will not establish a durable basis for the trading system, as their effect would be to slow economic development and perpetuate the poverty of developing countries. We support measures that would genuinely promote development; efforts to restrict the use of special treatment; the use of transitional measures to allow developing countries to adjust to new obligations and enhanced competition; and vigorous efforts to provide technical assistance and build capacity in developing countries.

CONCLUSION

It is unrealistic to expect overnight progress on an agenda as complex and interlinked as that involved in the Doha Round. What is essential is determination and persistence in moving the process forward. The Council believes that the Cancún meeting will be decisive in determining the real scope of the negotiations to come. Success in setting an ambitious agenda will be essential both to rebuild the credibility that has been lost through past failures to meet deadlines and to reinforce confidence in multilateral institutions and processes.

Agreement may well prove impossible on particular issues in the short term. What must not be permitted is for the overall negotiation to founder either because of a lack of political will or because of an apparent lack of interest on the part of the business community or other key stakeholders.

Canadians cannot be true either to the core values of our open, diverse and democratic society or to our country’s direct economic interests if we fail to be active participants in this vital multilateral process. Our economic stature may be modest in comparison with that of the United States or the European Union, but we nonetheless are capable of acting as a leader in resolving difficult issues. To be effective in fostering consensus globally, however, we obviously must be able to demonstrate consensus within Canada on how to address some of the sensitive domestic issues in which short-term sectoral interests conflict with the best long-term interests of the country and of the world.

As Canada’s business leaders, we understand the importance of effective multilateral institutions and rules to Canada’s interests and to global peace, freedom and prosperity. We are determined to work with our counterparts in business at home and abroad, with national and subnational governments and with all stakeholders in the negotiation process in order to reinforce multilateral cooperation and accelerate progress toward a successful conclusion to the Doha Round.