WORLD TRADE
ORGANIZATION
RESTRICTED
WT/REG38/M/1
11 June 1998
(98-2371)
Committee on Regional Trade Agreements
Seventeenth Session
EXAMINATION OF THE FREE TRADE AGREEMENT
BETWEEN CANADA AND CHILE
Note on the Meeting of 7 May 1998
Chairman: Mr. Claude Bouah-Kamon (Côte d'Ivoire)
1.
Under Agenda Item C.XI of its Seventeenth Session, as found in Airgram WTO/AIR/831, the
Committee on Regional Trade Agreements (CRTA) took up the examination of the Free Trade
Agreement (FTA) between Canada and Chile. The examination was conducted on the basis of the
Standard Format for Information on Regional Trade Agreements and accordingly followed its layout.
The following topics were discussed:
A.
B.
C.
D.
A.
General Statements
Section I
Background Information on the Agreement
I.3
Scope
I.4
Trade data
Section II
Trade Provisions
II.1
Import restrictions
II.2
Export restrictions
II.3
Rules of origin
II.4
Standards
II.5
Safeguards
II.6
Anti-dumping and countervailing measures
Section III
General Provisions
III.1
Exceptions and reservations
III.3
Institutional dispute settlement procedures
III.4
Relation with other trade agreements
General Statements
2.
The Chairman said that the Committee's task was to examine the Canada-Chile Free Trade
Agreement (CCFTA), which had been notified to the WTO in July 1997 (document WT/REG38/N/1).
The text of the Agreement had been received by the WTO in October 1997 (document
WT/REG38/N/1.Add.1). The Agreement had been signed on 5 December 1996 and entered into force
on 5 July 1997. He proposed, in line with past practice, that the Committee use the Standard Format
submitted by the Parties (document WT/REG38/2) to guide the debate. He hoped that the Committee
would make significant progress in its examination, given that the documentation had been available
for some time.
3.
The representative of Canada said that the Parties welcomed the opportunity to submit their
Agreement for examination. The CCFTA had been signed in December 1996 in Santiago, Chile and
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was implemented in July 1997, following legislative approval in both countries. It was notified to the
WTO later that month. The Agreement was comprehensive in scope, substantially liberalised trade
between the Parties and established a more secure and predictable framework for the conduct of
business in the free-trade area. It heralded a new era in Canada-Chile economic relations, which had
been growing rapidly in recent years. In the past five years trade had doubled, reaching
CDN$900 million in 1996. Canada had become the largest foreign investor in Chile with current and
planned investment exceeding CDN$8 billion. Moreover, while it was still too early to draw longterm conclusions, there had been significant increases in two-way trade in the first six months of the
Agreement's existence, as compared with the same period the year before. The Agreement reflected
the continuing commitment of the Chilean and Canadian governments to the cause of trade
liberalisation, multilaterally, regionally, and bilaterally. As well as stimulating trade and investment
between Canada and Chile, this Agreement had helped sustain the momentum for broader trade
liberalisation efforts. The CCFTA had been conceived originally as a mechanism to bridge Chile's
accession to the North American Free Trade Agreement (NAFTA) and was therefore modelled, to a
large extent, on the ambitious scope of obligations contained in that agreement. Parallel agreements
on labour and environment were strengthening co-operation and promoting effective enforcement of
domestic law without recourse to trade sanctions. Moreover, as the first FTA that Chile had entered
into with a developed country, and the first north-south FTA in the Western Hemisphere, the
Agreement had created a powerful stimulus for further trade liberalisation in the Americas and
beyond. In negotiating the Agreement, Canada and Chile had been particularly mindful of the need to
ensure full compliance with WTO obligations, including the provisions of Article XXIV of the
GATT 1994. In the view of the Parties, the Agreement more than met those tests. By any measure,
the Agreement called for coverage of substantially all the trade; fully 99.8 per cent of bilateral trade
was subject to tariff elimination under the Agreement, which covered more than 99 per cent of the
Parties' tariff lines. Further details on the trade coverage of the Agreement had been provided in the
Parties' submission to the CRTA. The Agreement liberalised trade between the Parties without
creating any new barriers to trade with third countries, or making duties or other regulations of
commerce any higher than before the formation of the free-trade area. Indeed, not only had barriers
not been raised, but the Parties had used the opportunity at the negotiations to commit to removing
MFN tariffs on a range of computer and semi-conductor products by 1 January 1999. Moreover, the
Parties had agreed to eliminate the application of anti-dumping actions, thus reinforcing the objectives
of establishing a free-trade area; they would have more to add about this particular aspect at an
appropriate later stage in the day's deliberations. In summary, he said that the Parties were of the
opinion that the CCFTA was fully consistent with WTO obligations and they looked forward to
Members' questions.
4.
The representative of Chile said that the delegate of Canada had spoken on his delegation's
behalf and he just wanted to explain why Chile had negotiated this Agreement with Canada. He
quoted the Canadian Minister of international trade who had said that geography had not made Chile
and Canada neighbours, but history had made them friends and the US Congress had made them
partners.
B.
Background Information on the Agreement
5.
The representative of the United States said that his delegation was impressed with the
Parties' submission of information and trade data in the Standard Format, as he was well aware of the
complexities involved in providing this kind of information. He had two questions relating to this
section of the Standard Format. He had noted the Canadian representative's remark that the CanadaChile FTA had been viewed as a bridge for Chile's accession to the NAFTA and he wondered why the
Parties had not included some of the important areas of the NAFTA, such as government procurement
and intellectual property rights. His second question concerned the chart of trade data provided in
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paragraph 4. According to this chart, 100 per cent of Canadian imports from Chile were covered by
the Agreement, yet his delegation was aware that Canada had not liberalised imports of dairy and
poultry products. Would the Parties explain these figures and the reasoning behind Canada's
exclusion of dairy and poultry products from the Agreement? He would also appreciate an
explanation of how the Parties allocated tariff-rate quotas (TRQs) for dairy and poultry products.
6.
The representative of Japan said that the statistics in pages 2 and 3 gave details of trade
between Canada and Chile, but his delegation was especially interested in the trend of imports into
Canada and Chile from third countries, both prior to the formation of the FTA and afterwards.
7.
The representative of Australia thanked the Parties for providing the information in the
Standard Format on the goods side and said he looked forward to receiving similar information on
services in the near future. His delegation was interested in knowing whether the Parties envisaged
including exempt products such as dairy and poultry at some stage in the future. Also, he wondered if
the Parties had undertaken a study of the effects of the Canada-Chile FTA on third parties.
8.
In response to the United States representative's question on the Agreement's non-coverage of
certain chapters included in the NAFTA, the representative of Chile said that coverage had been
decided upon after wide-ranging consultation between the Parties and that, in certain instances, both
Parties were at ease with the obligations contained in the WTO. It should be recalled that the NAFTA
had been negotiated in parallel with the Uruguay Round and had entered into force before its
conclusion. The Parties were of the opinion that the Uruguay Round provisions sufficed for their
bilateral relations in chapters such as intellectual property, standards and others. As regards
government procurement, given that there was virtually no discrimination in respect of national
treatment in this area, Chile had not considered it necessary to include it.
9.
In response to the question on dairy and poultry products raised by the representatives of the
United States and Australia, the representative of Canada said that these products were covered by the
Agreement. The in-quota tariff rates would be eliminated over a period of time as set out in a
schedule in a manner similar to that contained in the NAFTA. In response to the questions from other
delegations concerning the impact upon third countries, he agreed to supply additional information on
this subject when it was available. He also clarified that the Council for Trade in Services had not yet
referred the services aspects of the CCFTA to the CRTA.
10.
The representative of the United States had a follow-up question with respect to poultry and
dairy. The Parties had said that the in-quota tariff rate would be phased out: would the out-of-quota
tariff rate for these products also be phased out?
11.
The representative of Japan asked about the phase-out plan: it was his understanding that
there was a ten-year phase-out period for poultry coming into Chile from Canada. According to
paragraph 3 of the Understanding on the Interpretation of Article XXIV of the GATT 1994, the
recommended time period was ten years. What was the justification for longer phase-out periods?
12.
The representative of Australia said he had tried to reconcile the answer given by the
Canadian representative with the statement in the Standard Format that products which were excluded
from tariff elimination were identified with staging category "Y" and were limited to a number of
dairy, poultry and egg products. If these products had an actual staging category, what was it and why
had the Parties said that such products were excluded from tariff elimination?
13.
The representative of the European Communities raised a number of questions concerning
conflicting statements made by the Parties. He wanted to know whether poultry, dairy and egg
products were included in the scope of the Agreement, but excluded from tariff elimination, or if they
were excluded altogether; and if there was tariff elimination, what was the timetable for both in and
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out-of-quota rates? He requested an explanation of the exceptional circumstances which justified the
need, in certain cases, for transitional periods longer than ten years. In document WT/REG38/2 there
was a reference to beef imported into Chile, yet in the earlier document, WT/REG38/1 there was a
reference to sugar, milling wheat and wheat flour which had not been repeated in the second
document: was this because the longer transitional period was no longer required? He would
welcome a clearer listing of the products which were subject to the ten-year phase-out period. In
addition, he wondered if the Chilean representative could provide a clarification of the simplified duty
drawback scheme. It was said to include a certain number of products, but the full list was not evident
from the documentation provided.
14.
In response to the questions of the representatives of the United States and the European
Communities on dairy, poultry and eggs, the representative of Canada said that these products were
covered by the Agreement and by the tariff schedule. The in-quota tariffs would be eliminated over a
maximum period of ten years; for some products it would earlier. The over-quota tariffs would not be
eliminated.
15.
The representative of Chile added that his country applied no quotas in respect of the products
described by the representative of Canada, and there was no liberalisation of the applicable tariff
which was 11 per cent. The exceptional circumstances which would justify phase-out periods longer
than ten years applied only to Chile; Canada would not exceed the ten-year phase-out period. The
products subject to a phase-out period of longer than ten years were Chilean agricultural products
which were particularly sensitive. In order to permit liberalisation, a longer phase-out period was
required. As regards the simplified duty drawback applied by Chile, he said that this was a system
under which there was a 10 per cent drawback on the f.o.b. value of certain exported goods. Only
goods which, over the past years, had had export levels not greater than $2.5 million were entitled to
this drawback. If a good had exceeded this value on any given tariff line, it was no longer entitled to a
drawback. Therefore, it was not possible to identify individual products since any product whose
export level was less than $2.5 million was eligible. The drawback would be removed over time, as
once exports exceeded $18 million, the product would no longer qualify. Chile had notified this
system to the WTO pursuant to the Agreement on Subsidies and Countervailing Measures and was
committed to eliminating it by 2003. Further details were available in the Chilean Trade Policy
Review (TPR) which had taken place the year before.
16.
The representative of Australia said his delegation would welcome the confirmation sought
by the representative of the European Communities that Chilean tariffs on imports of milling wheat
and wheat flour would be phased out over a period of 17 years. According to the figures provided,
Chilean imports of wheat and meslin comprised 29 per cent of total imports from Canada in 1996. If
this was indeed the case, there did seem to be a large proportion of trade which potentially could fall
outside what was understood to be a reasonable implementation period. His delegation would be
grateful if the Parties could provide information on the proportions of trade for which duties had
actually been eliminated, excluding those on which there were preferential duties. On the subject of
poultry and dairy, he wanted to reflect on the answers given by the Parties. It appeared that there
would be no liberalisation of the over-quota tariff-rate, in which case it might be helpful if
information could be provided to show whether there was any trade over the quota and what the quota
amount was. It would also be useful if the Parties could provide data on the proportion of trade for
which the phase-out period of duty elimination was more than ten years.
17.
The representative of the United States said that according to the Agreement, Chile and
Canada would renegotiate the tariff on milling wheat and he wondered if the transition period was the
result of negotiations conducted subsequent to the Agreement's entry into force. Were there any other
agricultural products that Canada and Chile would revisit in terms of tariff acceleration or changes in
tariff rates? He requested clarification of the guidelines that governed the Canada-Chile seasonal
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duty-free access for durum wheat and asked if Chile would clarify the administration of its price
bands.
18.
The representative of the European Communities asked if the Parties could update the general
statistics with last year's figures, given that the tables provided were valid for 1996.
19.
The representative of Japan sought confirmation from the Parties that they had not raised the
applied MFN rates upon the formation of the free-trade area in respect of third countries. In addition,
he requested the justification for the quantitative import restrictions which had been maintained
between Chile and Canada.
20.
The representative of Canada said that the documentation provided by the Parties indicated
that 99.8 per cent of trade was covered by the Agreement in 1996. The Parties would provide
information to the Committee on those items for which duty elimination was longer than ten years, ten
years exactly, and less than ten years. In response to the question posed by the representative of
Japan, he replied that the Agreement did not provide for the increase of MFN tariffs vis-à-vis third
countries; on the contrary, it provided for the elimination of MFN duties in some areas.
21.
The representative of Chile made a clarification regarding one product which he thought had
skewed some of the figures referred to by the representative of Australia. In 1996 Chilean imports of
wheat from Canada were very large. Historically this had not been the case; it was primarily the
result of a plague which had infested wheat elsewhere in North America, south of Canada. So there
had been a significant shift of sourcing to Canada during that year. Secondly, with respect to durum
wheat, the tariff had been reduced by opening a window during which Canadian wheat entered Chile
with no duty. The window corresponded to the harvesting period. This had been agreed to over a
five-year period with an initial cutback of 50 per cent. Under the Canada-Chile FTA, Chile's system
of price bands which applied to certain products (e.g. wheat flour, vegetable oils, and sugar) would be
maintained. Specific duties could be levied on imports and these would not be eliminated over time.
The system could not be made more restrictive, nor could it be applied to new products. More details
could be found in Chile's Trade Policy Review.
22.
In response to the question by the representative of the United States concerning possible
renegotiation of tariffs, the representative of Canada said that this was a standard clause which
allowed either Party to propose acceleration of tariffs to reflect any changed circumstances following
the conclusion of the Agreement. This was a clause which would be familiar to the United States
representative, given the recent announcement of accelerated tariff elimination on $1 billion of goods
in the NAFTA.
23.
The Chairman reminded the Parties that the representative of the European Communities had
asked for an update of statistics.
24.
The representative of Canada replied that the Parties would provide the requested statistics as
soon as possible. He pointed out that information had been provided by the Parties in January 1998
when statistics for 1997 had not yet been completed.
C.
Trade Provisions
25.
In response to the representative of Chile's request for elaboration of his question on
quantitative restrictions, the representative of Japan said that his delegation understood that Canada
and Chile maintained quantitative import restrictions between them, e.g. Chile's prohibition on
imports of used cars and the goods referred to in Schedule VII of the Canadian Customs Tariff, and he
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wondered what the legal justification for these quantitative restrictions was. The representative of
Canada replied that goods that were prohibited from entering Canada under the provisions referred to
by the representative of Japan were offensive weapons, materials considered to be obscene or which
constituted hate propaganda, or were of a treasonable or seditious character. The importation of
certain wild animals was also prohibited. These restrictions were justified under GATT Article XX.
The representative of Chile replied that his country did not maintain QRs on the import of any
product, but it prohibited imports of used vehicles. A notification had been made to the WTO
Secretariat in which Chile had stipulated that its prohibition on imports of used vehicles was pursuant
to Article XX of the GATT.
26.
The representative of Australia said that his delegation did not expect the Parties to answer all
questions today and he would provide outstanding questions in writing. He reminded the Parties that
he had asked for more details on trade in dairy and poultry; whether there was any trade over-quota;
what the quota amount was; and for statistics on the proportion of trade on which duties had been
eliminated.
27.
The representative of the European Communities reminded the Parties that he had asked for
details on the coverage of products which would be subject to a phase-out period of longer than
ten years in the case of Chile. He had asked if this applied only to beef, or whether sugar, milling
wheat and wheat flour were also included, and whether the terms involved were 15 years for beef,
16 years for sugar and 17 years for milling wheat and wheat flour. He said he would provide these
questions in writing.
28.
The representative of Japan said that the Parties had stated that the over-quota tariff rate
would not be eliminated. Did this mean that it would never be eliminated or might elimination be
considered in the future? The Parties had explained that the phase-out period of ten years or more
was due to the sensitivity of certain products. Was this the only explanation?
29.
In response to the question by the representative of the European Communities, the
representative of Chile replied that 74 per cent of Chilean products had been liberalised immediately
at the date of entry into force of the Agreement. In the medium term, two to seven years time, some
24 per cent of products would be liberalised, and in the long term, beyond the ten-year horizon, the
remaining two per cent would be liberalised. So, considering tariff lines, two per cent of products
would be liberalised beyond the ten-year period. Sugar would be liberalised in 16 years, certain meats
in 15 years, milling wheat and flour in 17 years. For the purposes of calculating the remaining years,
1997 would be counted as a full year, even though the Agreement had entered into force on
5 July 1997.
30.
The representative of Canada said that, in terms of imports into Canada, 83 per cent of
imports had been made duty-free immediately; the remaining 17 per cent, with the exception of
70 tariff items out of 8,300 lines, would be duty-free by 2003. So more than 99 per cent would be
duty-free within seven years.
31.
The representative of European Communities asked about Chile's right to impose export
restrictions on copper and other reserves for national industry. He requested clarification as to the
extent to which restrictions had been placed in this area in the past and might be in the future. Given
that copper had the largest individual share of any product in the trade flow between Chile and
Canada in the statistics provided by the Parties (e.g. Canada's imports from Chile were
CDN$83 million for 1996), the possibility of imposing export restrictions in this area was clearly of
interest. While this information might be provided in Chile's Trade Policy Review, this did not
prevent him from asking the question here. The representative of the United States said that the
information gathered for the purposes of the TPR, in all likelihood, related to the elimination of QRs
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with respect to MFN trade. What was interesting to the Committee was whether QRs had been
eliminated between the Parties of an FTA.
32.
The representative of Chile said that he had not been trying to avoid responding to a question
by referring representatives to the TPR. If the answers given were not satisfactory, then, of course,
Members could seek further clarification. His delegation was well aware of the different nature of
this exercise compared with the Trade Policy Review. As regards restrictions on copper exports, he
explained that this was a consequence of Chile's experience during the Second World War when Chile
could easily have exhausted its supply of copper, given the high demand at the time. A provision had
been drafted into law according to which the manufacturing industry informed the copper producing
firms (both state-owned and private) how much copper they would need and the copper-producing
enterprises ensured the supply of copper to these firms at the prevailing international price. This had
historical justification at a time when there was no other supply of copper, but this was probably no
longer the case. Chile had committed itself to eliminate this restriction within two years as it was a
potential export restriction and therefore contrary to the prohibition of export restrictions in the
CCFTA.
33.
The representative of the European Communities said he had understood that it was Chile's
intention to make the legislation governing quantitative restrictions conform with the provisions of the
FTA within two years, after which Chile would no longer have the right to impose these quantitative
restrictions. Would the Parties confirm this and would the same action be applied on an MFN basis to
third countries? Additionally, he asked what was covered by the phrase "other reserves for national
industry": was anything other than copper envisaged by it?
34.
The representative of Chile replied that his country had an obligation to eliminate the export
restriction on copper within two years of the Agreement's entry into force. This treatment would be
applied on an MFN basis. The restriction was basically applicable to copper, and although the law
referred to other reserves, there was no practical application of it.
35.
The representative of Japan asked for clarification of the criteria used to determine local
content requirements. The fourth line of the explanation on rules of origin in the Standard Format
supplied by the Parties said that the criterion for local content was "a certain amount of Canadian and
Chilean content". His delegation wanted to know if the local content requirement had been raised
from levels existing prior to the formation of the free-trade area.
36.
The representative of Canada replied that the value content requirement was applicable to
certain goods. As far as there being a change from some previous content level, he said that the only
system in place prior to the Canada-Chile FTA was the Canadian General System of
Preferences (GSP) for developing countries, which had not been affected at all by this Agreement.
There had been no other changes to local content requirements. He added that the rules of origin in
the Canada-Chile Agreement were based mostly on a change in tariff classification, so there was no
value content requirement at all for many products and most tariff lines. However, for a number of
tariff lines, particularly automobiles and certain manufactured goods, there was a tariff shift
requirement plus a value content requirement. The level of the value content requirement was
specified for each product where it applied. For most products it was 35 per cent if the content
calculation was based on transaction value; this was spelt out in detail in uniform regulations that had
been developed by the Parties during the course of negotiations. The second calculation was based on
net cost. Under net cost the content level for most products was 25 per cent, where there was an
applicable value content test. Prior to the formation of the Canada-Chile FTA, Chilean products were
eligible to enter into Canada under Canada's GSP, which had a 50 or 60 per cent value content test,
using a calculation similar to the transaction value method. But this was not part of a free trade
agreement or any other bilateral agreement between Canada and Chile. So there had been no change
in the value content test, unless the Canada-Chile FTA was compared to the GSP. Canada had had no
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prior preferential arrangements with Chile. He hoped that this explanation was helpful; if any
Member wished to identify those products which were subject to a value content test, they could
consult Annex D-01 of the Agreement.
37.
The representative of Japan thanked the Canadian representative for his explanation. He
asked if Annex D-01 could be used to determine those cases where value content levels had been
raised: if it was extremely technical, could the Parties provide a summary of the rules for general
readers?
38.
The representative of Canada acknowledged that Annex D-01 was, at first glance, rather
scary. But it was like a telephone book; it was not necessary to look at every single line, but just the
line which dealt with the product of interest. He offered to provide a quick summary of where value
content tests existed and where they did not. There were no value content tests for any products
classified under Chapters 1-27 of the Harmonised System (HS). All agricultural products, minerals
and mineral fuels were subject simply to a change in tariff classification. In the case of chemicals,
HS Chapters 28-39, it was a mixed bag. Some products had a value content test, some had an option,
i.e. if they met a certain tariff shift a value content test was not required. If the tariff shift was not met
then there was a value content test. The value content was usually 50 or 60 per cent, depending on
whether the net cost or the transaction value method was used. In Chapter 40, rubber, there were
some value content tests. In Chapters 41-63, textile, wood, and apparel, there was no value content
test at all. In Chapter 64, footwear, there were value content tests. For Chapters 65-83, basic metals,
iron, steel, and aluminium, there were some value content tests, but not many. For Chapters 84-97
there were value content tests, but they depended on the product.
For example, on
telecommunications equipment, industrial machinery and equipment, and numerical control machines
there were no value content tests. On the other hand, for products such as automobiles, automobile
parts and certain electronic goods there were value content tests. Chapter 77 had no rules of origin
whatsoever. He asked if the Japanese representative could clarify what the previous content level was
that he had referred to previously. The only one that came to his mind was the GSP. Chilean
products subject to GSP were still eligible to be imported into Canada under this system, so in effect
the Chilean exporter had a choice.
39.
The representative of Australia said that the second paragraph of the Standard Format dealing
with rules of origin stated that "in drafting the specific rules of origin ..., Canada and Chile sought to
ensure that [their] producers ... who rely on imported inputs would be able to benefit from the
Agreement without major disruption to their normal source of materials". Would the Parties explain
what major disruption they had anticipated, and whether such disruption had been prevented?
40.
The representative of Canada said he would try to clarify the issue by using an automobile
example. When Canada and Chile negotiated the rules of origin, they had recognized that they shared
a similar economic structure. They were relatively open economies, both relying to a large extent on
imported inputs for many products. This was certainly the case for automotive products. The value
content level under the net cost method for automobile products was 20 per cent; for parts it was
30 per cent. This reflected the fact that both Canada and Chile imported a lot of the inputs used to
make automotive parts and to assemble automobiles and trucks. If the Parties had set a level of, say,
65 per cent, they would have stopped trade completely. The rules of origin had been designed to
foster and enhance trade in order to avoid such disruptions. As regards the Japanese representative's
question, he stressed that Canada had not had a prior free trade agreement with Chile. Previously,
Chilean products, automobiles or otherwise, could only enter Canada under the MFN tariff for which
there was no Chilean content requirement. An automobile from Chile could have 100 per cent
Chilean content or zero per cent Chilean content; the same MFN tariff would be paid on its entry into
Canada.
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41.
The representative of the United States said that the Canada-Chile FTA provided for the
development of special rules in only one sector, telecommunications. Could the Parties explain the
rationale and need for special rules in this sector and what rules were contemplated?
42.
The representative of Chile replied that when the CCFTA was being negotiated account was
taken of Chile's longer-term objective of accession to the NAFTA, which had a specific proviso on
telecommunications. While negotiating with Canada, Chile had had no objection to including
telecommunications in the Agreement in order to draw up standards in this area. This work was
programmed and the respective technical experts were carrying it out. As it had not yet taken
practical form, it was not possible to say what standards had been developed.
43.
The representative of Japan said that there were provisions between Canada and Chile for
emergency safeguard action. His delegation was interested in the impact upon third countries,
especially when the injury was caused because of an increase in imports coming from the Parties. For
example, if increased imports from Canada into Chile caused injury, would Chile apply safeguards
against third countries?
44.
The representative of Canada replied that the Agreement provided for two types of safeguard
action: bilateral and global. It would depend on the circumstances whether a Party would elect to use
a bilateral or a global safeguard action. In the case of a bilateral safeguard action, there would need to
be a determination that the injury was due to the reduction of duties contemplated in the Agreement.
In the case of a global action, the serious injury must have come from all imports. If a global action
were undertaken, the Agreement provided for the exclusion, in certain circumstances, of the imports
from the other Party, if it was ruled that such imports did not constitute a substantial share of total
imports and did not contribute significantly to the injury determination.
45.
The representative of Japan said he understood that the Parties would not apply safeguards
against third Party products in the case of a bilateral action. In the case of a global safeguard action,
the Parties would not apply safeguards among themselves, but only against third countries. Was this
understanding correct?
46.
The representative of Canada replied that, in the case of a global safeguard action, the
measure would be applied on an MFN basis, but the Agreement provided for the exclusion of the
other FTA partner in certain circumstances. These circumstances were laid out in the Agreement and
basically referred to whether the quantity of goods from the partner accounted for a substantial share
of total imports and whether the goods from the partner contributed significantly to the injury. If on
both counts the determination was negative, then the safeguard action would not be applied to the
partner. If the determination was affirmative, then the global safeguard action would be applied on an
MFN basis to the FTA partner.
47.
The representative of Japan replied that his delegation wanted to register its concern that, in
certain cases, the Parties would not apply global safeguard action between themselves. It was his
delegation's view that safeguards should be applied on an MFN basis to all Members in a global
safeguard action.
48.
The representative of Canada stated that it was the position of the Parties that the exclusion of
the other Party from a global safeguard action under certain circumstances, as described in his earlier
intervention, did not conflict with Article XIX of the GATT 1994 or with the WTO Agreement on
Safeguards, and was also consistent with Article XXIV.
49.
The representative of Japan had a similar question in relation to anti-dumping and
countervailing measures. The Parties did not apply anti-dumping duties in their mutual trade. If, for
example, Canada applied anti-dumping measures against third-country products, would Chile
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automatically apply anti-dumping duties against third-country products because Canada had applied
them?
50.
The representative of Chile read a statement concerning the application of anti-dumping
measures in the Canada-Chile FTA. The Agreement provided for a mutual phased-in exemption from
the application of anti-dumping duties. The exemption would be applied to products as they became
duty-free under the Agreement, with the exemption covering all trade by 1 January 2003. Since more
than 80 per cent of bilateral trade had become duty-free upon entry into force of the Agreement, the
reciprocal exemption applied immediately to the vast majority of trade. The Parties recognized that
the elimination of anti-dumping measures had been applied in other RTAs and Canada and Chile were
pleased to have been able to adopt this model, which both supported the economic objectives of a
free-trade area and was consistent with the principles of Article XXIV of the GATT 1994. As noted
in a study by the International Monetary Fund, anti-dumping as currently practised in the international
community had important anti-competitive effects. Canada and Chile recognized this fact and the
potential for anti-dumping measures to undermine the economic objectives of a free-trade area. In
this regard, the Agreement represented the Parties' commitment to deeper and further trade
liberalisation through the elimination of those measures which might create unnecessary barriers to
trade. In reaching this Agreement, Canadian and Chilean negotiators had considered the scope for
injurious price discrimination between their two markets (which, of course, was a pre-condition for
anti-dumping action), as well as anti-dumping practice between them. As regards injurious price
discrimination, it was acknowledged that the scope for such practice was practically non-existent with
the removal of trade barriers between the two countries, as well as the impact of broader, multilateral
liberalisation. Moreover, the incentive for price differentials was reduced by the possibility of
arbitrage. As regards anti-dumping practice in bilateral trade, neither Canada nor Chile had a history
of taking anti-dumping actions against the other. The Agreement thus consolidated current trade
practice. Respecting possible anti-competitive pricing activity, Chile and Canada both had in place
competition laws and had agreed to co-operate on issues of competition law enforcement policy,
including mutual legal assistance, notification, consultation and exchange of information relating to
the enforcement of competition laws and policies in the free-trade area. In this respect, Members
could consult Chapter J of the Agreement. Further, Chapter M of the Agreement allowed for special
consultation should exceptional circumstances arise, e.g. substantial changes in the conditions of trade
resulting from actions taken by third parties. The Parties had removed anti-dumping measures as they
were convinced that such a decision would provide the greatest benefit to their societies as a whole.
The mutual exemption from anti-dumping duties would have a positive impact on market access for
both countries by increasing the confidence and predictability of bilateral trade and investment. It
would achieve this without raising barriers to trade from non-parties. He underlined this last sentence
as it answered the point raised by the representative of Japan. Chapter M also reflected agreement
between Chile and Canada to work together multilaterally, including in the WTO and in the
negotiations of the Free-Trade Area of the Americas, with a view to improving trade remedy regimes
to minimise the potential to impede trade unnecessarily.
51.
The representative of Canada wished to add one point to the statement just made. The
delegations of both Canada and Chile were aware that the issue of the application of anti-dumping
duties in regional trade agreements had been identified in the Committee's Checklist of Systemic
Issues, although from a different angle, and in the context of a quite different agreement.
Nonetheless, the Parties looked forward to the opportunity to discuss this issue as part of the
Committee's horizontal work programme on systemic issues. In response to the question by the
Japanese representative, he said there was no automatic application of anti-dumping duties in either
Party's jurisdiction. If a dumping complaint was made, it had to go through the same procedures as
contained in domestic legislation. In other words, the domestic regimes were unaffected by this
exemption; it pertained only to bilateral trade between Canada and Chile.
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D.
General Provisions
52.
The representative of the European Communities asked for clarification regarding the
exception for cultural industries identified under Section III.1. Members were already familiar with
exceptions dealing with, for example, national security, balance of payments and taxation, but it was
unusual to see cultural industries included in such a list. His delegation would be interested to know
what exactly was covered, what rationale there was for it, and what the practical effects might be as
regards the bilateral relationship between Chile and Canada, and towards third countries.
53.
The representative of Canada replied that the position of his delegation on this issue was well
known to all Members. He pointed out that although there was a general exception for cultural
industries, this exception did not cover market access coverage in terms of tariff elimination. For
instance, tariffs would be eliminated on books. This general exception followed the same pattern as
in other regional trade agreements signed by Canada, and reflected the particular sensitivity of this
sector in his country. He stressed again that market access provisions, and therefore the liberalisation
of tariffs, were fully covered under the Agreement.
54.
The representative of the European Communities was grateful for the confirmation that
market access provisions were not affected by this exception. He would submit this question in
writing in anticipation of a fuller response by the Canadian delegation. He then asked for clarification
from the Parties under what circumstances a choice might arise between bilateral or multilateral
dispute settlement. What implications might it have, especially for the multilateral system of dispute
settlement; what was the rationale for the separate treatment of disputes arising in the area of
environmental and conservation agreements; and for problems arising in this area, how would
procedures differ and treatment be handled?
55.
The representative of Chile replied that the Agreement had a very good dispute settlement
system and it was presumed that the Parties would use it to settle any dispute between them.
Obviously, in certain cases, a dispute might arise where the Canada-Chile FTA provisions were
identical or similar to those existing in the WTO. In those instances, the complaining Party had the
choice: to remedy the matter either under the CCFTA or under the Dispute Settlement
Understanding (DSU) of the WTO. Normally, as was the case in any bilateral agreement, it was to be
hoped that the matter could be settled bilaterally, but the Parties had the option to appeal to WTO
procedures. In each case, the claimant would have to choose which forum best suited his interests: the
WTO DSU or the CCFTA. There were no pre-determined criteria and therefore no trade impact on
WTO Members.
56.
The representative of Canada added that, with respect to the environmental agreements that
the representative of the European Communities had asked about, the provisions in the CCFTA
reflected the importance both Canada and Chile had attached to environment-related matters in the
negotiation of the Agreement. The provisions had been established to provide a responding Party
with the means to ensure that a complaining Party could not avoid its commitments in Article A-04 by
choosing the WTO forum. Article A-04 listed three international environmental conventions of which
the Parties were members: the Convention on International Trade in Endangered Species of Wild
Fauna and Flora, the Montreal Protocol on Substances that Deplete the Ozone Layer, and the Basel
Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal.
Dispute settlement provisions had been established to ensure that the Agreement would not derogate
from the Parties' right to take action under the specific trade obligations of those environmental and
conservation agreements. The WTO had no equivalent rule for those set out in Article A-04, so the
Parties had determined that it was appropriate that disputes on such actions be pursued under the
bilateral Agreement.
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57.
The representative of Japan said that both the WTO and the multilateral environmental
agreements listed in Article A-04 had a dispute settlement mechanism, though was not familiar with
the details of the dispute settlement procedures of the latter. Did the CCFTA require Parties to use the
dispute settlement mechanism of the multilateral environmental fora first?
58.
The representative of Canada replied that the provisions in the Canada-Chile FTA did not
provide that only the bilateral dispute settlement procedures might be invoked; rather, a complaining
Party had the initial choice of forum, but this was subject to a responding Party's right to request that
the matter be considered under the bilateral arrangement. This would then result in the complaining
Party having recourse to dispute settlement solely under the bilateral Agreement. What was at issue
here was not the choice of pursuing a dispute settlement in the environmental agreements, it was the
choice between pursuing procedures in the WTO as opposed to the bilateral arrangement.
59.
The representative of the European Communities said that, while he was satisfied with the
idea that two Parties to the WTO might agree to waive their rights to use the WTO dispute settlement
mechanism as regards a dispute between them, he wondered if any thought had been given to the
legitimate interests of third parties. Were the multilateral instruments mentioned under Article A-04
the only instruments concerned; were there any specific bilateral agreements in the area of
environment or conservation which might also fall under this provision; and was it foreseen that the
list of agreements might change and be extended in the future?
60.
The representative of Canada confirmed that the only relevant agreements were those referred
to in Article A-04, which he had mentioned previously. In parallel with the CCFTA, Canada and
Chile had also concluded a side agreement on environment, but this was a completely separate
agreement which had no bearing on the dispute settlement procedures here. He added that there was
nothing in the Agreement that in any way changed the rights and obligations either of the two Parties
or of any other WTO Member.
61.
The representative of the United States asked about the relationship of this Agreement with
other regional trade agreements, e.g. the Canada-Israel FTA and the Chile-MERCOSUR FTA. How
were the obligations of the various agreements coordinated?
62.
The representative of Chile replied that there was no relationship between agreements. Chile
had signed numerous FTAs with other countries, e.g. Mexico, Colombia, Venezuela, Ecuador,
MERCOSUR. Of course, co-ordination was difficult, but this was an internal problem. There was no
relationship between the CCFTA and other agreements signed by Chile and the same thing could be
said for Canada in its agreement with Israel.
63.
The representative of Canada confirmed that there was no relationship between the CanadaChile FTA and any other regional or bilateral free trade agreement signed by Canada.
64.
The Chairman said that the second round of examination of the Canada-Chile Free Trade
Agreement would take place at the Committee's next meeting in July. Members should submit any
outstanding questions in writing by the end of May and the Parties should try to respond to them by
15 June at the latest, so that delegations would have time to study these documents before the next
meeting.
65.
The Committee took note of the comments made.
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