CANADA or modification of these practices, such that the implementation of the subject action will no longer be necessary. The Canadian Wheat Board (CWB) controls all imports of barley and barley products through an import licensing system. Similar restrictions were applied to wheat and wheat products but were removed from applicability to imports from the United States in May of 1991, in accordance with the provisions of the FTA. Under the terms of the FTA Canada agreed to eliminate these import license requirements when the U.S. support levels for these commodities became equal to, or less than, those in Canada. In January 1988, Canada tightened import restrictions on dairy products by implementing a permit system to restrict imports of ice cream and yogurt. On December 4, 1989, the GATT Council adopted a dispute settlement panel's finding that the quotas and permit system are inconsistent with Canada's GATT obligations. Canada said it will not implement the findings until the Uruguay Round concludes because it believes that GATT Article XI, which addresses quantitative restrictions, should be revised in the Round. Canada continues to apply the restrictions. Several restrictions apply to fresh fruit and vegetable imports. Domestic production of horticultural products is protected by high seasonal tariffs which are being phased out under the FTA. However, Canada has invoked a special temporary "snapback" provision in the FTA three times, on U.S. exports of fresh asparagus, peaches and tomatoes. A provision of Canada's Processed Products Regulations, under the authority of the Canada Agricultural Products Act, gives Canadian firms preferential treatment by allowing them the privilege of marketing "oversizes" (beyond prescribed package sizes) if the containers bear registered labels issued by Agriculture Canada. However, only Canadian registered establishments may issue these labels under current law. U.S. firms marketing in Canada are not eligible for registration and U.S. marketing efforts are confined to the sizes prescribed in the regulations. The government has published proposed rules to correct the problem. U.S. entities are currently studying the proposed changes before making formal comment on them. The proposed change would not apply to products imported for further processing, such as frozen tart cherries for manufacturing pies and pastry products. Several other problems exist in the area of standards and labeling. Entry of most U.S. residential construction plywood is effectively denied because of Canadian Standards Association (CSA) plywood standards. Common standards would enable U.S. plywood products to compete in Canadian markets. A binational plywood committee consisting of experts from the U.S. and Canada has developed a draft common performance standard and forwarded it to the appropriate national standards bodies for adoption. The FTA chapter on technical standards provides for the accreditation of U.S. certification organizations and testing laboratories in Canada. However, the Canadian accreditation agency, Standards Council of Canada, was dilatory in effecting CANADA the necessary regulatory changes and reviewing U.S. applications, thereby placing U.S. certification and testing organizations at a competitive disadvantage vis-a-vis their Canadian counterparts. Canada maintains annual global import quotas for chicken, turkey and table eggs. The FTA enlarged the quota quantities. On May 8, 1989, Canada imposed import quotas on broiler hatching eggs and chicks. The two governments negotiated an agreement on access levels for 1990 and 1991. The U.S. has reserved the right to pursue the issue under the GATT. A preferred supplier relationship between Bell Canada, Canada's largest telecommunications service provider, and Northern Telecom, Canada's largest telecommunications equipment manufacturer, constitutes a barrier to U.S. export sales of telecommunications equipment to Canada. Canadian customs regulations limit the temporary entry of specialized equipment needed to perform short-term service contracts. Certain types of equipment are granted duty-free or reduced-duty entry into Canada only if they are unavailable from Canadian sources. Consequently, a U.S. company, in order to fulfill a service contract, may be forced to rent the equipment or pay full duties and taxes on its equipment. These regulations effectively prevent U.S. firms from competing for specialized service contracts in Canada. Under the Canadian Goods Abroad Program, Canadian goods sent to the United States for non-warranty repairs, additions or transformations, are dutiable on the full value of the goods plus the value of the services performed abroad if the work could have been done by a Canadian firm within a "reasonable distance." These restrictions unfairly limit market acess for U.S. service providers. Canada provides "group relief" from the Goods and Services Tax (GST) to financial institutions with regard to their purchase of actuarial, management, underwriting, and data processing services from related companies within Canada. GST "group relief" provisions do not apply to imported services, disadvantaging Canadian subsidiaries of U.S. financial institutions that normally purchase such services from a U.S. affiliate or home office. The On April 25, 1989, Canada eliminated GATT-inconsistent export prohibitions on Pacific roe herring and two species of salmon, and instituted a requirement that all roe herring and five species of salmon be landed in Canada before export. U.S. challenged the consistency of the landing requirement with GATT and the FTA. A dispute settlement panel, established under the FTA, found that Canada's landing requirement violated the terms of the GATT and the FTA. Canada and the U.S. subsequently negotiated an interim agreement which permits direct export by Canadian licensees of a portion of the Canadian catch. However, Canada imposes an export restriction on herring which are exported to the U.S. for freezing and reexported to Canada for processing if adequate freezing capacity is available in British Colombia. CANADA Canada denies Canadian enterprises tax deductions for the cost of advertising in foreign broadcast media and publications when the advertising is directed primarily at Canadians. This negatively affects the operations of U.S. border television stations beaming programs into Canada. Various restrictions on advertising aimed specifically at the Canadian market restrict U.S. access to the Canadian market for publications and print media advertising. Canadian law requires that processing and maintaining Canadian bank operation records must be done in Canada. Legislation is pending which will allow the Superintendent of Financial Institutions to grant exemptions. Since 1979 the Canada Post Corporation (CPC) has applied higher postal rates to foreign publications printed outside Canada and mailed in Canada, and to foreign publications printed and mailed in Canada, than to Canadian publications. The lower rates for Canadian publications cost the Canadian Government about Cdols 225 million per year in CPC subsidies to support Canada's book, magazine and cultural sectors. In April 1989, the government announced its intention to phase out two subsidies paid to reduce postal rates for Canadian publications. The Cdols 225 million annual subsidy is to be reduced by Cdols 10 million in fiscal year 1989-90, and by Cdols 45 million in each subsequent year. New postal rates announced in early 1991 began the process of eliminating the subsidy, but actually increased the discrimination against foreign publications during the transition. Canada Post also eliminated the relatively favored category for foreign publications printed and mailed in Canada, greatly increasing the mailing costs for some important U.S. publications with Canadian editions printed in Canada. Under the Investment Canada Act and Canadian policies in the energy, publishing, telecommunications and transportation, broadcasting and cable television sectors, Canada maintains laws and policies which interfere with new or expanded foreign investment. As well, foreign investment in the banking and financial services sectors is restricted under the Bank Act and related statutes. The Investment Canada Act requires the federal government to review and approve U.S. and other foreign investment to. ensure "net benefit to Canada." The Act exempts from prior government approval foreign investments in new ("greenfield") businesses and acquisitions worth less than Cdols 5 million. The exemption excludes "culturally sensitive sectors" such as book publishing and distribution, film and video, audio music recordings and music in print or machine readable form. Also excluded as "culturally sensitive" are foreign investments to establish new businesses or acquire existing ones for the publication of magazines, periodicals or newspapers. Foreign investment in these sectors is potentially subject to review regardless of size or whether the investment is new or through direct or indirect acquisition. Indirect acquisitions outside the cultural area worth Cdols 50 million or more are also subject to review. Under the Free Trade Agreement, Canada commits to phase in higher threshold levels for review of direct acquisitions from Cdols 5 million to Cdols 150 million CANADA in constant dollar terms by 1992. Screening of indirect acquisitions will be phased out altogether by 1992. These liberalizations to the Invesment Canada Act agreed to in the Free Trade Agreement do not extend to investments in the "cultural industries" or the oil, gas and uranium sectors. Investment Canada enforces a federal book publishing policy known as the "Baie Comeau Policy". Canada requires that foreign-owned book publishing or distributing subsidiaries in Canada be divested to Canadians within two years if the ownership of the parent changes hands. In addition, Canada will approve new investments and direct acquisitions in the sector only if Canadians are given control within two years. Under the FTA, Canada commits to offer to purchase a Canadian subsidiary from a U.S. investor at fair open market value as determined by an independent, impartial assessment in the event of a forced divestiture pursuant to the Baie Comeau policy if no Canadian private sector purchaser can be found. Investment Canada also has specific policies regarding foreign investment in the film distribution sector which state that: -takeovers of Canadian owned and controlled distribution firms will not be allowed; -investment to establish new distribution firms in Canada will only be allowed for importation and distribution activities related to proprietary products; -indirect or direct takeovers of foreign distribution firms operating in Canada will be allowed only if the investor undertakes to reinvest a portion of its Canadian earnings in accordance with national cultural policies. The Canadian government continues to pursue as a long-term policy goal Canadianization (50 percent Canadian ownership) of the country's oil and gas industry. Although many of the provisions of the National Energy program introduced in 1980 have been rescinded, substantial restrictions on foreign investment in the energy sector continue in force. These restrictions have been "grandfathered" in the FTA. Direct acquisition of Canadian-controlled firms continues to be reviewable. Takeovers of healthy Canadian firms valued at more than Cdols 5 million will be rejected. Purchases of unhealthy firms may be permitted subject to discussion of corporate undertakings of equity, investment and employment. Canadians must own at least 51 percent of an individual uranium property when it comes into production. While any foreign firm may begin business in Canada, bid for leases, and explore for and develop oil and gas reserves, a Canadian ownership ratio of at least 50 percent is required before a consortium can receive an oil or gas production license on Crown lands, including Canadian offshore areas on the west, east and north coasts, the Northwest Territories and the Yukon. In late 1991 the energy minister promised to loosen the rules governing foreign ownership in the oil and gas industry. In the banking sector, the Bank Act of 1980 made CANADA chartering of foreign banks possible for the first time. However, the Act imposed on foreign banks limitations that do not apply to domestic institutions, e.g., foreign owned banks chartered in Canada are limited to a main office and one branch, but additional branches may be opened with government approval. The Act also restricted the total asset share of foreign bank subsidiaries to eight percent of total domestic assets of all chartered banks in Canada, although a 1984 amendment to the Act raised this to 16 percent. Foreign banks are also unable to acquire a domestic Canadian bank, since no one can hold more than 10 percent of a Canadian bank's assets. Moreover, no more than 25 percent of a bank's assets can be held by a group of foreigners. (These restrictions are known as the "10/25 rule"). The FTA eliminated discriminatory restrictions on U.S. bank subsidiaries in Canada. U.S. banks are not subject to the domestic asset ceiling and U.S. firms and investors are exempt from the 25 percent limitation on equity holdings in Canadian banks. The FTA as well eliminates the federal "10/25" rule for acquisitions in the non-bank financial sector. In the securities sector, provincial laws which regulate the sector were amended to abolish the "10/25" rules applying to investment in securities firms. In the trust and loan and insurance sectors, which are regulated by both the federal and provincial governments, foreign investors wishing to establish in either of these two areas may do so, but acquisitons of provincial firms are still subject to the provincial "10/25" rules. As already noted, Canada reserves the right to review certain foreign investments and consider any conditions investors "volunteer" consistent with the Investment Canada Act. Once an investor "volunteers" to meet various performance requirements, the undertakings are de facto preconditions to entry. The FTA ends the imposition of most performance requirements on U.S. investors and third-country investors when U.S. trade interests would be affected. Under the FTA, export requirements, import substitution, domestic content and local purchasing requirements are prohibited. Investment Canada offers ample administrative authority to deny national treatment to foreign-owned investors in certain sectors, e.g., book publishing, and also permits considerations based on nationality (rather than antitrust) for indirect acquisitions of some Canadian firms. Limitations on national treatment as reported to the Organization for Economic Cooperation and Development include: -discriminatory federal and provincial provisions on -several discriminatory government procurement practices; and -right of establishment restrictions on new investment by already established investors. Where GATT Government Procurement Code or FTA requirements do not apply, Canadian government entities follow |