Minister of Small Business, Export Promotion and International Trade appearance before the Special Committee on the COVID-19 Pandemic

2020-06-17

USTR Remarks to « reset WTO tariffs »

Issue

US Trade Representative Testimony to House Committee on Ways and Means Calling for “Broad Reset at the WTO”

Responsive Lines

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• The WTO has been an important vehicle to lower tariffs and address other barriers affecting trade in Canadian goods and services.
• Canada is already a low tariff jurisdiction, which contributes to our economic growth.
• Canada actively supports tariff liberalization at the WTO and through its bilateral and regional free trade agreements.
• Canada continues to engage constructively with the United States and other countries on WTO reform efforts.
• Ongoing WTO negotiations, e.g. on agriculture, fisheries and e-commerce, are an important opportunity for all WTO Members to make new rules that support the global economy.

Releasable Background

On Wednesday, June 17, 2020, U.S. Trade Representative Robert Lighthizer appeared before Congress to testify on the President's 2020 Trade Agenda. In his prepared remarks, Ambassador Lighthizer touched upon the need for countries to "reset" their bound tariff commitments at the WTO to provide better market access for the U.S. Bound rates are binding tariff commitments at the WTO, whereby all Members have agreed to cap the tariff rates they can charge on products to a certain amount. Applying a tariff on a good above a bound rate contravenes WTO rules and almost always results in a dispute. Members' commitments to cut tariffs and to “bind” their tariff rates to levels was one of the major results of the Uruguay Round.

Ambassador Lighthizer told the House Ways and Means Committee that "In addition to reigning in the Appellate Body, the United States will also seek a broader reset at the WTO. Currently, outdated tariff determinations are locked in place that no longer reflect Members' policy choices and economic conditions. As a result, many countries with large and developed economies maintain very high bound tariff rates, far above those levied by the United States. The United States must ensure that tariffs reflect current economic realities to protect our exporters and workers.”

Canada and the U.S. have relatively low bound and applied tariffs. According to its WTO Member profile, the U.S. currently has an overall simple average final bound tariff of 3.4% (4.9% for agricultural goods, 3.2% for non-agricultural goods). For Canada, the overall simple average final bound tariff is higher at 6.5% (15% for agricultural goods, 5.1% for non-agricultural goods). However, Canada generally applies tariffs well below its bound rates for many goods. 70% of Canadian tariff items are currently applied MFN Free. Based on 2019 imports, 89.3% of imports entered Canada duty-free (all tariff treatments).  Based on this, the average applied duty rate is less than 1% (0.9).

Renegotiating bound rates for all WTO Members would be a significant undertaking and would likely require several years to complete. This proposal is unlikely to be well received by most WTO Members.

Notifications of non-compliance from China for imported Canadian logs

Issue

16 notifications of non-compliance received from China for imported Canadian logs.

Responsive Lines

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• On June 9, 2020, Canada received 16 notifications of non-compliance from China related to the discovery of pests in shipments of hardwood and softwood logs.
• Canada is investigating the notices of non-compliance as per standard response procedures.
• Trade of forestry products to China continues without disruption despite the notices.
• The excellent quality of Canadian forestry products has allowed Canada to build confidence and trust among buyers around the world.
• The Canadian Food Inspection Agency will continue to keep stakeholders up to date as the situation evolves.

Releasable Background

On June 9, 2020, the CFIA received 16 Notifications of Non-Compliances (NNCs) from China related to exports of softwood and hardwood logs from Canada. An initial response letter to China acknowledging receipt of the NNCs was sent by the CFIA. The CFIA is also investigating these notifications, including verification of the validity of the phytosanitary certificates that accompanied the exports.

The names of the pests reported on the NNCs were sent to the Canadian Forest Service (CFS) to verify their status as pests and whether they are associated with the Canadian or US species of logs exported to China. Based on initial response from CFS, it appears that two of the insects reported are not known to occur in North America and one of these is not known to occur in Canada. This information will be further analysed.

In 2019, value of exports of softwood and hardwood logs from Canada to China was $403 million, with over 90% of exports to China from the province of British Columbia.

CUSMA: Tariff Rate Quota Allocation Policies

Issue

Certain US stakeholders have expressed concerns regarding the recently published allocation policies for the CUSMA dairy Tariff Rate Quotas (TRQs).

Responsive Lines

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• Canada's administration of its TRQs will be in full compliance with its commitments under the Agreement.
• Canada takes all of our trade obligations very seriously.
• These interim policies are a result of extensive consultations with interested parties, including multiple U.S. stakeholders.
• Policies respect both trade obligations and domestic commitments.
• Canada's dairy, poultry and egg farmers, their families and their communities can count on the full support of our Government.

Releasable Background

Under the Canada-United States-Mexico Agreement (CUSMA), Canada has agreed to provide the United States with 16 new TRQs for supply-managed commodities: 14 for dairy products; 1 for chicken; and 1 for eggs. The TRQs will be phased in over a period of 10 to 19 years, depending on the commodity.

These new TRQs represent the first significant increase in TRQ access for the U.S. in 25 years. Like the implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), this increased market access presents both opportunities and challenges regarding the allocation of the TRQs.

On June 15, Canada published its interim allocation policies for the CUSMA TRQs, which were drafted taking into account Canada's CUSMA obligations, the Government of Canada's commitment to the long-term viability of supply management, potential market impacts, and the continued efficiency and effectiveness of TRQ administration.

The policies have also been informed by extensive stakeholder consultations, beginning in 2016 in the context of the CETA and the CPTPP as well as the Comprehensive Review of the Allocation and Administration of TRQs for Dairy, Poultry and Egg Products initiated in May 2019.