Canada: Budget 2009 Highlights: Canada´s Economic Action Plan Proposes Measures To Strengthen Canadian Businesses

Last Updated: March 10 2009
Article by Milos Barutciski, Jesse Goldman and Darrel Pearson

On January 27, 2009, the Minister of Finance presented his budget titled Canada's Economic Action Plan: Budget 2009. The Budget outlines measures aimed at encouraging economic recovery and growth. Amongst these measures, several are specifically aimed at strengthening the position of Canadian businesses and will have an impact on international trade. Most notable are tariff reductions on machinery and equipment, measures relating to improving cross-border movement of goods, short-term support for "key sectors", and investment in infrastructure.

Tariff Reductions on Machinery and Equipment

The Budget proposes to permanently eliminate tariffs on a range of machinery and equipment. The measure is aimed at assisting Canadian producers to purchase specialized equipment, modernize their operations, and increase their competitiveness. It is expected that this measure will allow Canadian industry to save $440 million over the next five years.

Movement of Goods

The Budget provides for steps to be taken to facilitate the movement of goods by modifying the Customs Tariff rules respecting the treatment of temporarily imported cargo containers. Further, it pledges to begin consultations with respect to further liberalization of the use of these containers in Canada. It also intends to carry out modifi-cations to the Customs Tariff rules announced in September 2008 to implement the results of GATT Article XXVIII negotiations regarding milk protein concentrates.

Investment in Infrastructure

The Budget outlines several initiatives aimed at improving Canada's border infrastructure. These include an $80-million investment to modernize and expand border service facilities with the express goal of reducing processing time of commercial shipments. Specific projects include $14.5 million for bridges at two of the busiest U.S.-Canada border crossings (Blue Water Bridge in Sarnia and Peace Bridge in Fort Erie) as well as funds for border facilities at Prescott in Ontario and at Huntingdon, Kingsgate, and the Pacific Highway in British Columbia.

Short-Term Support for "Key Sectors"

The Budget promises to assist sectors, which it identifies as "key sectors", by taking steps to support them until the economy improves.

The forestry sector will receive a total of $170 million over the next two years: $80 million will be provided for the Transformative Technologies program; $40 million to develop pilot-scale demonstration projects of new products that can be used in commercial applications; $40 million for the Canada Wood, Value to Wood, and North America Wood First programs to help forestry companies market innovative products internationally; and $10 million to support large-scale demonstrations of Canadian-style use of wood for construction in targeted off-shore markets and non-traditional uses of wood in domestic markets.

As to the automotive industry, the Budget recognizes that Canada is part of a highly integrated and increasingly global market. The Budget references the agreement reached between the federal and Ontario governments whereby GM and Chrysler would receive up to $4 billion in short-term repayable loans. Further, it pledges to create a $12- billion Canadian Secured Credit Facility in order to improve credit availability for consumers to purchase and lease new vehicles.

Trade Negotiations

Harper Willing to Include Labour and Environment in NAFTA

The most surprising policy revelation to come out of President Barack Obama's first foreign visit was Prime Minister Stephen Harper's expressed willingness to include labour and environment provisions in the text of NAFTA, provided it does not require a renegotiation of the whole agreement. Harper's statement was a volte face from his position a year ago when he stated in the House of Commons on February 28, 2008, that it would be a "mistake" for the U.S. to reopen NAFTA. At that time, it was reported that presidential hopefuls Hillary Clinton and Obama had threatened to pull the U.S. out of NAFTA unless it was renegotiated. During his visit to Canada, Obama seemed to be taking a distinctly cautious approach on free trade by restricting himself to a suggestion that the NAFTA labour and environment side accords "might as well be incorporated into the main body of the agreement, so that they can be effectively enforced". At the same time, Obama stated that the U.S. must show "leadership in the belief that trade ultimately is beneficial to all countries."

Trade and Climate Change

U.S. Climate Change Plans Do Not Address Imports

The legislative outline for battling climate change unveiled by Senate Environment and Public Works Committee Chairperson Barbara Boxer does not address how exactly such a bill would deal with imports of carbon intensive goods from countries that do not take any action to reduce or curb the emissions of greenhouse gases comparable to the U.S.

One of the main principles of the bill is to ensure that there is "a level playing field, by providing incentives for emissions trading reductions and eff ective deterrents so that the countries contribute their fair share to the international effort to combat global warming." Under the broad principles of the bill, the United States would establish a national "cap and trade" system, under which energy companies and makers of carbon intensive goods would buy and trade the right to emit greenhouse gases. There is a fear among U.S. domestic firms that the higher costs of compliance will give a trade advantage to foreign firms who do not face similar regimes.

However, several senators have made legislative proposals to level the global playing field by requiring companies that import goods from countries that do not adopt a comparable system to the U.S. to reduce emissions to purchase allowances. The critical question is whether this allowance system passes muster as a bona fi de conservation measure that is consistent with WTO rules or whether it amounts to unlawful protection for domestic industry. Enacting legislation that meets WTO rules could present a challenge as some U.S. lawmakers and domestic industry sectors want to see greater focus on trade protection in the bill, which would undermine any arguments for its legitimate environmental purpose. Any legislation that imposes increased costs on foreign producers may be challenged by the producers' governments as being protectionist. Indeed many countries, including China and India, have forcefully made this point.

At the moment there are no bills that address this issue and this presents an interesting international trade law issue as it is clear that the U.S. is moving ahead with a "cap and trade" model but without firm indication of how obvious and less obvious trade and economic aspects will be addressed.

WTO Report on Trade Barriers

WTO Report: Broken Promises and Rising Trade Barriers

A report issued by the WTO reveals that certain countries have taken steps to erect new trade barriers and improve the export performance of domestic industries in their response to dealing with the global financial crisis. Report to the TPRB from the Director-General on the Financial and Economic Crisis and Trade Related Developments catalogues a range of measures undertaken by certain countries that either complicate or restrict trade. In doing so, some G-20, APEC and Asian nations have failed to abide by pledges made at international meetings at the end of 2008, where they agreed not to put in place new protectionist tariff and non-tariff barriers to trade when dealing with the impact of the global financial crisis. The WTO counts Argentina, Brazil, India, Indonesia, Russia and South Korea as already having broken this pledge. With the European Commission announcing intentions to reinstate subsidies for some dairy products, France, Germany, Italy and the United Kingdom could be added to the list. Moreover, the report does not discuss trade restricting or distorting measures that have been or are likely to be adopted in places like the United States, Brazil, Japan as well as other Asian countries.

Trade: New USTR

Kirk Named U.S. Trade Representative

President Obama has named pro-trade former Dallas mayor Ron Kirk as U.S. Trade Representative. Mr. Kirk will serve in the cabinet-level post with offices in Washington, Geneva and Brussels.

As a past supporter of NAFTA and China Permanent Normal Trade Relations (PNTR), Kirk will face close scrutiny as he assumes the responsibility for delivering on Obama's pledge to fix existing trade agreements and create a new trade policy that benefits more people. Kirk's opposition to Fast Track during his 2002 U.S. Senate race puts him in line with the majority view in Congress and positions him to deliver on Obama's campaign pledge to replace Fast Track with a process that provides a greater role for Congress to ensure that American trade agreements promote the public interest.

Among Kirk's challenges will be to strengthen labour and environmental standards in existing agreements and to remove numerous provisions that conflict with Obama's key policy goals in health care, climate change and energy independence. These changes may require renegotiation of aspects of the World Trade Organization agreements in important areas such as procurement policy, service-sector regulation (including financial services and health care) and food and product safety.

Kirk must tread a fine line between calling for key changes to trade agreements while avoiding repudiation of the WTO and the Doha Round in a way that could undermine the WTO and its dispute settlement mechanism at a time when the effective functioning of these institutions is critical to preventing a further slide to protectionism and a worsening of the global recession.

Product Regulation

Update on Bill C-6: Safety of Consumer Products

On January 29, 2009, the Government of Canada introduced Bill C-6, An Act Respecting the Safety of Consumer Products, which seeks to provide better oversight of consumer products by improving the government's ability to take timely compliance and enforcement actions when unsafe products are identified. This is the Government's second attempt at overhauling and expanding federal consumer product safety legislation. The previous attempt, Bill C-52, died on the Order Paper when Parliament was prorogued prior to the last federal election.

Bill C-6 is part of the Government's Food and Consumer Safety Action Plan to which it recently committed $113 million over two years. It is expected that Health Canada will work with the Canada Border Safety Agency to identify potentially unsafe products at the point of entry and double the number of product safety inspectors over the next five years.

Other key features of Bill C-6 include mandatory reporting by suppliers of serious product-related incidents or defects that could cause serious illness or injury and the prohibition of manufacturing, importing, advertising or selling of consumer products that pose an unreasonable danger to human health or safety.


Lamy to Governments: Rebuild Confidence and Fight Protectionism

In a speech on February 23, 2009, World Trade Organization Director-General Pascal Lamy outlined steps the international community needs to take in order to counter mounting isolationist tendencies.

First, WTO Doha Round negotiations should be completed as quickly as possible. He warned that tariff s applied on trade today could double if they were raised to existing bound ceilings. By contrast, proposals currently on the table in the Doha Round, would cut these same tariff ceilings by half again. Second, governments should resist the temptation of raising trade barriers in their less obvious forms such as "buy local" conditions, providing direct or indirect subsidy packages, or abusing trade remedies. Third, the international community must ensure the availability and affordability of import and export finance. The lack of financing has contributed to the decline in trade.

He also pointed to the next April G20 Summit in London as being a test of whether global mechanisms are capable of effectively dealing with global challenges.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Milos Barutciski
Jesse Goldman
Darrel Pearson
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