More Than Milk and Lumber –US Trade Concerns With Canada

In the US there is what is called the US Trade Representative . This person is attached to the White House and co-ordinates trade policy for the Government . Each year this office does a review of major irritants that the US continues to have with various nations with which it trades. The report is called The National Trade Estimate Report on Foreign Barriers. It is a public document available at the trade representative ‘s website.

So it is not very difficult to know what aggravates the US about various Canadian policies which the US believes are barriers to free trade. They are all there in this report. I wonder if I can find a similar public document in Canada that does Canada’s irritants?

I was unaware of this report until I read Drew Hassleback’s article in the National Post .

You thought ,no doubt , that the trade problems were softwood lumber and some milk .

Well, it is much more than that . Here is the section on Canada in this report :

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANTIARY BARRIERS Technical Barriers to Trade

Restrictions on U.S. Seeds Exports

For many major field crops, Canada’s Seeds Act generally prohibits the sale or advertising for sale in Canada, or import into Canada, of seeds of a variety that is not registered. The purpose of variety registration is to provide government oversight to ensure that health and safety requirements are met and that information related to the identity of the variety is available to regulators in order to prevent fraud. However, there are concerns that the variety registration system is slow and cumbersome. The United States is consulting with Canada on steps to modernize and streamline Canada’s variety registration system.

Cheese Compositional Standards

Canada’s regulations on compositional standards for cheese limit the amount of dry milk protein concentrate (MPC) that can be used in cheese making, reducing the demand for U.S. dry MPCs. The United States continues to monitor the situation with these regulations for any changes that could have a further adverse impact on U.S. dairy product exports.

IMPORT POLICIES

Agricultural Supply Management

Canada uses supply-management systems to regulate its dairy, chicken, turkey, and egg industries. Canada’s supply-management regime involves production quotas, producer marketing boards to regulate price and supply, and tariff-rate quotas (TRQs) for imports. Canada’s supply-management regime severely limits the ability of U.S. producers to increase exports to Canada above TRQ levels and inflates the prices Canadians pay for dairy and poultry products. Under the current system, U.S. imports above quota levels are subject to prohibitively high tariffs (e.g., 245 percent for cheese and 298 percent for butter).

The United States remains concerned about potential Canadian actions that would further limit U.S. exports to the Canadian dairy market. For example, the United States continues to monitor closely any tariff reclassifications of dairy products to ensure that U.S. market access is not negatively affected.

Milk Classes

Canada provides milk components at discounted prices to domestic processors under the Special Milk Class Permit Program (SMCPP). These prices are “discounted” in the sense that they are lower than Canadian support prices and reflect U.S. or world prices. The SMCPP is designed to help Canadian processed products compete against imports in Canada and in foreign markets. Effective May 1, 2016, the Canadian Milk Supply Management Committee (CMSMC) modified an existing national milk class, Class 4(m), to extend discount pricing to a wider range of Canadian dairy ingredients, including liquid dairy ingredients (an action taken by CMSMC as an agency of Canada’s government). An agreement reached between Canadian dairy farmers and processors in July 2016 included a new national milk class (Class 7) that extends discount pricing to an even wider range of Canadian dairy ingredients. Provincial milk marketing boards (agencies of Canada’s governments) began implementing Class 7 in February 2017. Both Class 7 and the modification to Class 4(m) are aimed at undercutting the price and displacing current sales of U.S. dairy ingredients.

The United States has raised its serious concerns with Class 7 and the modification to Class 4(m) (and Class 6—see below) with Canada bilaterally and at the WTO Committee on Agriculture, and is examining these milk classes closely.

Ontario Milk Class 6

Ontario introduced a provincial Ingredient Strategy and implemented a new milk class on April 1, 2016, (Class 6) that provides Ontario processors skim milk solids at discounted prices, aiming to undercut the price and displace current sales of U.S. dairy ingredients.

Restrictions on U.S. Grain Exports

A number of grain sector policies limit the ability of U.S. wheat and barley exporters to receive a premium grade (a grade that indicates use for milling purposes as opposed to grain for feed use) in Canada, including the provisions of the Canada Grain Act and Seeds Act.

Under the Canada Grain Act, the inspection certificate for grain grown outside Canada, including U.S. grain, can only state the country of origin for that grain and not issue a grade. Also, the Canada Grain Act directs the Canadian Grain Commission to “establish grades and grade names for any kind of western grain

and eastern grain and establish the specifications for those grades” by regulation. The explicit division between “eastern grain” and “western grain,” are defined in the Canada Grain Act as “grain grown in the [Eastern or Western] Division,” defined geographically within Canada, further underscores that grading is only available to Canadian grains. Under the Canada Grain Act, only grain of varieties registered under Canada’s Seeds Act may receive a grade higher than the lowest grade allowable in each class

U.S. wheat and barley can be sold without a grade directly to interested Canadian purchasers at prices based on contract specifications. However, contract-based sales are a relatively small proportion of all sales in Canada. Most sales occur through the bulk handling system in grain elevators. Canadian grain elevators offer economic efficiencies by collecting and storing grain from many small-volume growers, giving them the ability to fulfill larger contracts and to demand higher prices for that ability.

The barriers to assigning U.S. grain a premium grade encourages both a price discounting of high-quality U.S. grain appropriate for milling use and de facto segregation at the Canadian elevator.

The United States will continue to press the Canadian government to move forward swiftly with legislative and any other necessary changes that would enable grain grown outside Canada to receive a premium grade and changes to its varietal registration system.

Personal Duty Exemption

Canada’s personal duty exemption for residents who bring back goods from short trips outside of its borders is less generous than the U.S. personal duty exemption. Canadians who spend more than 24 hours outside of Canada can bring back C$200 worth of goods duty free, or C$800 for trips over 48 hours. Canada provides no duty exemption for returning residents who have been out of Canada for fewer than 24 hours. U.S. retailers have raised concerns about the effect of this policy on purchases by Canadians on short trips to the United States.

De Minimis Threshold

De minimis refers to the maximum threshold below which no duty or tax is charged on imported items. Canada’s de minimis threshold remains at C$20, which is the lowest among industrialized nations. By comparison, in March 2016, the United States raised its de minimis threshold from $200 to $800. Some stakeholders, particularly shipping companies and online retailers, maintain that Canada’s low de minimis threshold creates an unnecessary trade barrier.

Wine, Beer, and Spirits

Canadians face high provincial taxes on personal imports of U.S. wines and spirits upon their return to Canada from the United States. This inhibits Canadians from purchasing U.S. alcoholic beverages while in the United States.

Most Canadian provinces restrict the sale of wine, beer, and spirits through province-run liquor control boards, which are the sole authorized sellers of wine, beer, and spirits in those provinces. Market access barriers in those provinces greatly hamper exports of U.S. wine, beer, and spirits to Canada. These barriers include cost-of-service mark-ups, restrictions on listings (products that the liquor board will sell), reference prices (either maximum prices the liquor board is willing to pay or prices below which imported products may not be sold), labeling requirements, discounting policies (requirements that suppliers offer rebates or reduce their prices to meet sales targets), and distribution policies.

British Columbia

In January 2017, the United States requested WTO dispute settlement consultations on British Columbia measures regarding the sale of wine in grocery stores. These measures allow only British Columbia wines to be sold on grocery store shelves, while imported wine in grocery stores can only be sold in a “store within a store” under controlled access with separate case registers, discriminating against the sale of U.S. wine in grocery stores. These regulations appear to breach Canada’s WTO commitments and have adversely impacted U.S. wine producers.

Ontario

Previously, grocery stores in Ontario were not permitted to sell wine. Under Regulation 232/16, issued in June 2016, grocery stores are permitted to sell wine under certain conditions, including ones related to the size of the winery producing the wine, the size of wineries affiliated with the producing winery, the country where the grapes were grown, and whether a wine meets the definition of a “quality assurance wine.” Working with U.S. industry, the United States is analyzing these conditions for sale in grocery stores as well as other developments in Ontario to help ensure U.S. wines are not disadvantaged.

Quebec

Quebec’s new measure raises concerns that it may discriminate against imported wines. The measure may advantage Quebec craft wine producers by allowing them to bypass the liquor board, Société des alcools du Québec (SAQ), and therefore also the liquor board mark-ups, to sell directly to grocery stores.

DOMESTIC SUPPORT MEASURES

Aerospace Sector Support

Canada released a comprehensive review of its aerospace and space programs in November 2012. The review offered 17 recommendations intended to strengthen the competitiveness of Canada’s aerospace and space industries and guide future government involvement in both sectors. Recommendations called on the Canadian government to create a program to support large-scale aerospace technology demonstration, co-fund a Canada-wide initiative to facilitate communication among aerospace companies and the academic community, implement a full cost recovery model for aircraft safety certification, support aerospace worker training, and co-fund aerospace training infrastructure.

The review also recommended that the Canadian government continue funding the Strategic Aerospace and Defense Initiative (SADI). The SADI provides repayable support for strategic industrial research and pre- competitive development projects in the aerospace, defense, space, and security industries, and has authorized C$1.32 billion to fund 33 advanced research and development projects since its establishment in 2007.

The Canadian federal government and the Quebec provincial government announced aid to the Bombardier aircraft company in 2008 to support research and development related to the launch of the new class of Bombardier CSeries commercial aircraft. The federal government provided C$350 million in financing for the CSeries aircraft, and the government of Quebec provided another C$118 million. The federal government and Quebec government also are offering commercial loans to potential buyers of the aircraft. In February 2017, the government of Canada announced $284 million assistance to Bombardier. The federal government will make a direct $97 million repayable contribution to Bombardier’s Montreal-based CSeries program, and a $187 million loan to Bombardier’s Toronto-based Global 7000 program using

Canada’s Strategic Aerospace and Defense Initiative, making it one of the largest loans ever made with the SADI program. In June 2016, Bombardier reached a final agreement with the Quebec government for the province to buy a 49.5 percent equity share in a CSeries joint-venture for $1 billion, with a commitment by the company to maintain aircraft manufacturing operations in Quebec for a period of 20 years. Under the agreement, Bombardier received two $500 million payments from the Quebec government, the first on June 30 and the second on September 1.

In February 2017, Brazil requested consultations in the World Trade Organization alleging that Canadian federal and provincial subsidies provided to Bombardier are inconsistent with Canada’s international trade obligations. The United States will join these consultations as a third party.

The United States will continue to monitor carefully any government financing and support of the CSeries aircraft.

While Parties to the February 2011 OECD Sector Understanding on Export Credits for Civil Aircraft implement the revised agreement, the United States also has expressed concern over the possible use of export credit financing from Export Development Canada to support commercial sales of Bombardier CSeries aircraft in the U.S. market.

Canada has committed to spend approximately C$25 million from 2009 to 2018 to support the Green Aviation Research and Development Network and provide additional funding to the National Research Council’s Industrial Research Assistance Program to support research and development in Canada’s aerospace sector. Canada’s federal government announced in October 2016 that a consortium of companies and academic institutions, led by Bombardier, will receive up to C$54 million to develop “the next generation of aircraft technologies.”

GOVERNMENT PROCUREMENT

Canada has made commitments to open its government procurement to U.S. suppliers under the WTO Agreement on Government Procurement (GPA) and NAFTA. The current agreements provide U.S. businesses with access to procurement conducted by most Canadian federal departments and a large number of provincial entities, and to procurement by some but not all of Canada’s Crown Corporations. The 2010 United States-Canada Agreement on Government Procurement includes market access obligations which have either expired or are captured under the revised GPA.

Hydro-Québec, a provincial-level Crown Corporation in Quebec, maintains a local (Quebec) content requirement in its procurements for wind energy projects, and these local content requirements can pose hurdles for U.S. companies in the renewable energy sector in Canada.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Protection and enforcement of intellectual property rights (IPR) is a continuing priority in bilateral trade relations with Canada. In 2013, the U.S. Government moved Canada from the Priority Watch List in the Special 301 Report to the Watch List in light of steps taken to improve copyright protection through the Copyright Modernization Act. The United States welcomed Canada’s amendment to its Copyright Act in June 2015 that extends protection for sound recordings from 50 to 70 years from the date of recording. With respect to pharmaceuticals, the United States continues to have concerns about the application of patent utility standards that Canadian courts have adopted. The United States has concerns about due process and transparency of the geographical indications system in Canada, including commitments Canada

took under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) on October 30, 2016.

On IPR enforcement, Canada’s Parliament passed the Combating Counterfeit Products Act on December 9, 2014, but the United States is disappointed that Canada did not amend this legislation to allow for inspection of in-transit counterfeit trademark goods and pirated copyright goods entering Canada destined for the United States. Additionally, there continue to be questions about the effectiveness of Canada’s copyright safe harbor system. The United States continues to work with Canada to address IPR issues.

SERVICES BARRIERS

Telecommunications

Canada maintains a 46.7 percent limit on foreign ownership of certain suppliers of facilities-based telecommunication services (i.e., those with more than 10 percent market share), except for submarine cable operations. This is one of the most restrictive regimes among developed countries. Canada also requires that Canadian citizens comprise at least 80 percent of the membership of boards of directors of facilities- based telecommunication service suppliers. As a consequence of these restrictions on foreign ownership, the role of U.S. firms in the Canadian market as wholly U.S.-owned operators has been limited to that of resellers, dependent on Canadian facilities-based operators for critical services and component parts.

Canadian Content in Broadcasting

The Canadian Radio-television and Telecommunications Commission (CRTC) imposes quotas that determine both the minimum Canadian programming expenditure (CPE) and the minimum amount of Canadian programming that licensed Canadian broadcasters must carry (Exhibition Quota). Large English- language private broadcaster groups have a CPE obligation equal to 30 percent of the group’s gross revenues from their conventional signals, specialty, and pay services.

In March 2015, the CRTC announced that it will eliminate the overall 55 percent daytime Canadian-content quota. Nonetheless, the CRTC is maintaining the Exhibition Quota for primetime at 50 percent from 6 p.m. to 11 p.m. Specialty services and pay television services that are not part of a large English-language private broadcasting group are now subject to a 35 percent requirement throughout the day, with no prime time quota.

For cable television and direct-to-home broadcast services, more than 50 percent of the channels received by subscribers must be Canadian channels. Non-Canadian channels must be pre-approved (“listed”) by the CRTC. Upon an appeal from a Canadian licensee, the CRTC may determine that a non-Canadian channel competes with a Canadian pay or specialty service, in which case the CRTC may either remove the non- Canadian channel from the list (thereby revoking approval to supply the service) or shift the channel into a less competitive location on the channel dial.

The CRTC also requires that 35 percent of popular musical selections broadcast on the radio qualify as “Canadian” under a Canadian government-determined point system.

In September 2015, the CRTC released a new Wholesale Code that governs certain commercial arrangements between broadcasting distribution undertakings, programming undertakings, and exempt digital media undertakings. A proposal in the new Wholesale Code to apply a code of conduct designed for vertically-integrated suppliers in Canada (i.e., suppliers that own infrastructure and programming) to foreign programming suppliers (who by definition cannot be vertically integrated, as foreign suppliers are

prohibited from owning video distribution infrastructure in Canada) has raised significant stakeholder concerns. Additionally, stakeholders have expressed concern related to provisions in the Wholesale Code that affect U.S. broadcast signals and services within Canada. The Wholesale Code came into force January 22, 2016.

U.S. suppliers of programming also have raised concerns about a CRTC policy not to permit simultaneous substitution of advertising for the Super Bowl, beginning in the 2016-2017 season. Simultaneous substitution is a process by which broadcasters can insert local advertising into a program, overriding the original U.S. advertising and providing the Canadian broadcaster an independent source of revenue. U.S. suppliers of programming believe that the price Canadian networks pay for Super Bowl rights is determined by the value of advertising they can sell in Canada, and that the CRTC’s decision reduces the value of their programming. On August 19, 2016, the CRTC issued a formal rule preventing simultaneous substitution during the Super Bowl by a major Canadian telecommunication company, which has exclusive rights to air the Super Bowl in Canada. The United States is highly concerned about this policy.

INVESTMENT BARRIERS

The Investment Canada Act (ICA) has regulated foreign investment in Canada since 1985. Foreign investors must notify the government of Canada prior to the direct or indirect acquisition of an existing Canadian business above a threshold value. Canada amended the ICA in 2009 to raise the threshold for Canada’s “net benefit” review of foreign investment. The threshold currently stands at C$600 million and had been scheduled to increase to C$1 billion in 2019. The government announced November 1, 2016 that the threshold for review will be raised to C$1 billion in 2017, two years sooner than originally planned Innovation, Science and Economic Development Canada is the government’s reviewing authority for most investments, except for those related to cultural industries, which come under the jurisdiction of the Department of Heritage Canada. Foreign acquisition proposals under government review must demonstrate a “net benefit” to Canada to be approved. The Industry Minister may disclose publicly that an investment proposal does not satisfy the net benefit test and publicly explain the reasons for denying the investment, so long as the explanation will not do harm to the Canadian business or the foreign investor.

Under the ICA, the Industry Minister can make investment approval contingent upon meeting certain conditions such as minimum levels of employment and research and development. Since the global economic slowdown in 2009, some foreign investors in Canada have had difficulty meeting these conditions.

Canada administers supplemental guidelines for investment by foreign SOEs. Those guidelines include a stipulation that future SOE bids to acquire control of a Canadian oil-sands business will be approved on an “exceptional basis only.”

BARRIERS TO DIGITAL TRADE

Data Localization

The Canadian federal government is consolidating information and communication technology (ICT) services across 63 Canadian federal government email systems under a single platform. The tender for this project cited national security as a reason for requiring the contracted company to keep data in Canada. This requirement effectively precludes U.S.-based “cloud” computing suppliers from participating in the procurement process, unless they replicate data storage and processing facilities in Canada. The public sector represents approximately one third of the Canadian economy and is a major consumer of U.S.

services, particularly in the information and communication technology sector. The requirement, therefore, is likely to have significant impact on U.S. exports of a wide array of products and services.

British Columbia and Nova Scotia each have laws that mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of a few limited exceptions applies. These laws prevent public bodies, such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies, from using U.S. services when there is a possibility that personal information would be stored in or accessed from the United States.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s