Posted by Michael Woods on Feb 17, 2015

In the second part of our examination of Canada’s defence of the supply management system in international trade disputes, we will take a closer look at the NAFTA Panel, In the Matter of Tariffs Applied by Canada to Certain U.S. – Origin Agricultural Products [NAFTA Secretariat No. CDA-USA-1995-2008-01] In its Report, the NAFTA Panel recalled that “… the United States has argued that Canada ‘gambled’ that it could convince participants in the Uruguay Round to preserve the right to maintain agricultural quotas …” and that Canada lost both that gamble and the right to impose the tariffs that replaced them on U.S. products as a result of the subsequent NAFTA deal.  At this particular point in time, many Canadians whose livelihoods where tied to supply management, where concerned about this U.S. attack which went to the heart of the system and represented, “the most serious threat Canada has experienced since free trade with the United States began …” [Francis Russell, “Canada’s Lame Defence” Winnipeg Free Press, February 5, 1995, A6] In Part I, we briefly summarised Canada’s supply management system, which has grown significantly since the 1930’s into a large and complex program that is founded on three pillars:  Domestic production control, based on demand and administered  through a program of government administrated quotas; Set prices based on cost of production and negotiated between the government and producers; and Import controls designed to plan domestic production and avoid pressure on pricing. For the system to work, there must be strict limits on imports of supply-managed products.  Following the GATT Article XI:2(c)(i)  provision, Canada instituted a system of import controls which prevent imports of any of the supply managed commodities over a set volume or quota. Imports above the annual set quota were prohibited and set through a complex process that establishes total demand and total Canadian domestic supply, with a low, pre-determined global volume of imports to be allowed. These import quotas were allocated to individual importers through an import permit system. Until 1995, import quotas, which operated through quantitative restrictions (or import bans for any product beyond the authorized amount), were permitted.  As part of the conclusion of...

Posted by Michael Woods on Feb 12, 2015

Canadian trade negotiators appear to be under a great deal of pressure from our trade partners with respect to supply management.  In fact, that may be an understatement as reports and analytical pieces on the progress of the Trans Pacific Partnership (TPP) negotiations continue to surface. This post will be the first of a series looking back at some of the international trade disputes (GATT, WTO, and NAFTA) in which some elements of Canada’s supply management system have come under scrutiny.   Both partners at Woods, LaFortune LLP were heavily involved in some of Canada’s big trade disputes during their tenure at External Affairs (now the Department of Foreign Affairs, Trade, and Development or DFATD). Since 1947, Canadian trade policy and trade lawyers have been called upon to defend the system as advocates in international dispute resolution as well as through various negotiation tables. One of the first large trade disputes focused on access to Canada’s dairy, poultry, egg, barley, and margarine market and attempted to attack the competitive advantages Canadian producers enjoyed in those respective sectors [The NAFTA Panel in the Matter of Tariffs Applied by Canada to Certain U.S. Origin Agricultural Products (Secretarial File No. CDA-95-2008) December 2, 1996]. In this case, the U.S. alleged that Canada increased tariffs for a range of agricultural products contrary to Canada’s NAFTA undertakings. More technically what was being litigated was a sub-clause of a provision of the General Agreement on Tariffs and Trade (GATT).  The term “supply management” does not appear in the GATT, instead, the sub-clause in question appears in GATT Article XI which prohibits quantitative restrictions (import prohibitions). In 1947, the original 23 GATT members (Contracting Parties) agreed to both the general principals of liberalized trade and the need for a series of exceptions.  Professor John Jackson who wrote the original “GATT bible” in 1969 (Word Trade and the Law of GATT)  recalls that the exceptions to export restrictions and prohibitions set out in Article XI reflected an original draft proposal  by the United States, that the need for exceptions in the agricultural sector created a dynamic that weakened the ability to achieve a greater level of free trade...

Posted by Michael Woods on Jan 27, 2015

Last week we quoted Alanis Morissette  – “isn’t it ironic, don’t you think …” It appears that the back and forth actions and reactions over the Port of Prince Rupert Ferry Terminal Project (the “Prince Rupert Ferry Project”) have resulted in a kind of trade related “mutually assured destruction” (otherwise known as “M.A.D.” in other contexts).  There is some irony in that a “defensive” trade measure originally designed by Canada to counter the extraterritorial reach of a U.S. measure aimed at blocking trade with Cuba (the FEMA), was recently employed to block a U.S. measure’s application on Canadian soil in the Prince Rupert Ferry Project. While at the same time, the U.S. began re-opening trade with Cuba. It even appears that the “good offices” of Canada have been leveraged in bringing the two Cold Warriors together. Aside from recognizing the irony and the importance of staying up to date with how international trade measures can affect your business, here are some further thoughts. The halt that was put on the Prince Rupert Ferry Project by the invocation of the FEMA has occurred at a time when both Canadian and Americans need the work and at a time when business could certainly use the improved infrastructure. Therefore, perhaps it is time we consider the need for better metaphorical “bridge building” between the world’s two largest commercial partners. Yes, the Buy America Act and the application of the FEMA seem to have added to an ever growing list of trade irritants, but it is important to keep them in perspective. On a positive note, it should be highlighted that approximately $2 Billion of two-way trade crosses the Canada-U.S. border every day – unimpeded by trade barriers and increasing exponentially via various measures and tools the two countries have put in place. In fact, it is often said that over 98% of our bi-lateral commerce takes place without irritants and that the attention or “noise” caused by the headlines over cases like the Prince Rupert Ferry Project gives us (Canadians, Americans,  and all those watching us fight) an inaccurate impression of the state of Canada-U. S. trade relations.  This is probably correct....

Posted by Michael Woods on Jan 21, 2015

To quote a well-known Canadian singer, “isn’t it ironic, don’t you think …” As the United States is moving to end over half a century of frozen relations with Cuba, and is poised to end trade embargos that sideswiped Canadian business, it is also taking steps to keep Canadian steel out of a construction project on Canadian soil by applying Buy America Rules outside its borders.  The result is that the Government of Canada has been compelled to issue an Order under the Foreign Extraterritorial Measures Act (FEMA) to counter the application of Buy America to the Prince Rupert Ferry Terminal project.  FEMA, which was enacted in 1985 to deal with extraterritorial application of U.S. trade sanctions aimed at Cuba, has only been used once before (in 1992) to prevent Canadian Corporations from taking any steps following U.S. measures prohibiting commercial relations with Cuba.  The FEMA is now being used for a second time, but the issue is not Cuba or the global application of U.S. sanctions on a third party. For the first time, FEMA is being rolled out in the bi-lateral context. Last November, we reported on Canada’s concerns about the application of U.S. Buy America rules to a major infrastructure project at the Port of Prince Rupert, British Columbia [see https://www.wl-tradelaw.com/buy-america-affecting-projects-in-canada/]. The project involves the upgrade of the Prince Rupert ferry terminal on British Columbia’s West Coast.   The Alaska Marine Highway System has exclusive use of the ferry terminal, which services passengers shuttling between Alaska and British Columbia, as part of a 50-year lease agreement between the Alaska Department of Highways and the Prince Rupert Port Authority. The State of Alaska maintains that the $15 million project is subject to Buy America because the funding comes from the U.S. Federal Highway Administration.  Thus, in spite of the fact that the project is located on Canadian soil, all iron and steel used in the Prince Rupert Project must be of U.S. origin. While Canada has made its objections to the application of Buy America legislation in this case quite clear, along with its overall opposition to the policy, the next legal step was announced on January 19,...

Posted by Michael Woods on Dec 9, 2014

The “Sleeping Giant” – with all the attention devoted to the recent conclusion of the Canada and European Union (EU) Comprehensive Economic and Trade Agreement [“CETA”], Canada’s new Free Trade Agreement [“FTA”] with Korea may be getting overshadowed.  In my view, the Canada-Korea Free Trade Agreement will prove to be one of Canada’s most important trade policy initiatives since the landmark Canada – U.S.  FTA and the North American Free Trade Agreement [“NAFTA”] were negotiated 25 and 20 years ago respectively [see, https://www.wl-tradelaw.com/woods-lafortune-discuss-25th-anniversary-of-free-trade/] For one thing, this represents a breakthrough for Canada as it marks its first FTA with an Asia-Pacific partner.  For another, the Canada-Korea Free Trade Agreement [“CKFTA”] has now been ratified and will come into force on January 1, 2015 – years ahead of CETA’s projected implementation. I personally like to call it the “Sleeping Giant” because of its potentially critical, although possibly less visible, role in Canada’s trade policy framework.  It is also of special importance to me because I was privileged to serve as Commercial Counsellor at the Canadian Embassy in Seoul where I learnt about Korea’s long and proud history. In fact, its original emergence as a single unified country dates back to the 7th century.  For much of its history, Korea was relatively isolated and shrouded in mystery – known as the Hermit Kingdom. The modern nation was established in 1948 with the creations of the Republic of Korea [“ROK” or “Korea”] in the south and the Democratic People’s Republic of Korea [“DPRK”] in the north.  Following the struggle, hardships, and losses of the Korea War (1950-1953), the ROK began a determined, brave, and ambitious course. While maintaining and drawing on its centuries old culture and traditions, the Sleeping Giant awoke to the world of global trade and investment and build a powerhouse economy. Today the ROK is the world’s 15th-largest economy and the fourth-largest in Asia. Isolated no longer, it has become both an Asian-Pacific gateway and a hub for global trader. Under our publications section, we have posted Part I in a three part series on the Canada-Korea FTA. The “Canada-Korea Free Trade Agreement Part I: The Sleeping Giant –...