bout de papier, Vol. 5, No. 1 (1987) — Spring 1987 // Printemps 1987, pp. 39–43
Canadian Regulation of International
Trade and Investment, by Robert K.
Paterson, with Jock A. Finlayson, Philip
Raworth and Malcolm D.H. Smith,
Carswell Legal Publications, Toronto, 1986,
429 pp., hardcover, $78.00.
The study of modern Canadian international trade policy and practice appears at last to be coming into its own. It is no longer the secret preserve of a few government officials and an even smaller group of specialists in the universities, think-tanks and trade organizations. It now boasts a respectable and knowledgeable literature including textbooks, handbooks, monographs and journal articles. Sometime in the next few months, a Canadian journal dedicated to international trade law will make its debut.
Five years ago, when I was engaged in the trade policy review exercise, the government of the day took the unusual step of releasing the somewhat textbookish background paper, A Review of Canadian Trade Policy, 240 pages of worthy analysis and explanation of the nature of trade policy making in Canada. The decision to release that study was largely motivated by a realization that there existed then not a single survey of the subject written for the informed but nonspecialist audience. Specialists relied almost exclusively on US and European studies. No Canadian university offered either a graduate or undergraduate course devoted to trade policy. The most common excuse offered was that no suitable literature existed. This in a country which depends on international trade for a third of its gross national product. We have reaped the whirlwind of this lack of appreciation of the importance of trade policy. Today the most important trade policy issue of the century is debated daily in the newspapers at a level bound to confuse rather than enlighten. The rudimentary knowledge and insight required to lift the debate above the banal and simplistic remains absent from the vast majority of otherwise well educated Canadians. Only in Canada are journalists astonished to learn that a free trade negotiation is about removing most barriers to trade.
Canadian academics and officials have long worked in splendid isolation.
The reasons for this dearth of public understanding of trade policy lie in part in government practice. Departmental senior officials and negotiators are loath to share their knowledge and analysis with anyone other than trustworthy former colleagues either retired and/or in private industry. The defendants of that attitude argued, for example, against the public release of the trade policy review. Its proponents still believe that a little public knowledge is a nuisance and a lot is dangerous. Unlike in the United States, where scholars and officials work closely together, where there is a lively interchange of appointments and where there is a large and informed literature available, Canadian academics and officials have long worked in splendid isolation. “Sound” trade policy writing has been largely the preserve of retired officials. Rodney Grey is the most eminent current example; Dana Wilgress was typical of an earlier generation.
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But things are looking up. We now have an eminently readable and perceptive study of the GATT and the international trade system from a Canadian perspective (Frank Stone, Canada, the GATT and the International Trade System) published by the Institute for Research on Public Policy. The Institute has also released a number of more specialized studies, including one by Rodney Grey and a recent set of essays by Gerry Salembier, Sandy Moroz and Frank Stone, The Canadian Import File: Trade, Protection and Adjustment, to be reviewed in a future issue. Some ten volumes of the collected research studies of the Macdonald Commission were devoted to trade policy issues, many of them by specialists without the benefit of government training. Some of these monographs may prove to be the most enduring contribution of the Commission. The C.D. Howe Institute continues to pour forth its timely and topical statements and observations. Publishers like Hurtig and James Lorimer keep things interesting by publishing nationalist diatribes on a range of trade policy issues. The Canada-US trade initiative has generated a lively and knowledgeable literature debating the pros and cons of the issues, much of it from a trade policy perspective. The challenge today is keeping up with the literature. A shortage of literature no longer stands in the way of teaching trade policy in Canada’s universities.
When I was introduced to trade policy making in the early 1970s, first with Gerry Shannon in the External Affairs Commercial Policy Division and then with Frank Stone in Geneva, it was impressed upon me that trade policy was not difficult to understand intellectually, but that a full grasp required mastery of its detail. More than a decade of experience has convinced me of the truth of this assertion. The concepts are not difficult, but they only come to life in the detail learned from continuous negotiation and application.
It was also impressed upon me that book learning would only go so far; to fully understand trade policy one had to experience its negotiation and administration. This was more difficult to appreciate. American and European authorities such as John Jackson, Kenneth Dam and Gerard Curzon have all demonstrated that good work can be done by academic specialists. Sadly, however, much Canadian writing has given comfort to those in Canada who believe that writing authoritatively about trade policy requires hands-on government experience.
The third article of faith in the Ottawa trade policy community was that lawyers need not apply. Trade legislation and orders-in-council may be easily understood if you know trade policy; the reverse does not hold true. Trade policy issues that are largely matters of law and its administration (e.g., anti-dumping and countervailing duties) are more readily grasped than the much more nuanced textile restraint system. But in this I may be hostage to the traditional hostility between lawyers and trade policy specialists in government (not just the Canadian government). As mitigating evidence, lei me suggest that the ever increasing judiciali-
* zation of trade law, particularly in the United States, has proven to be more protectionist in effect than any of the artful dodges invented by the policy specialists, particularly in Canada. Artful dodges can be quickly adapted to changing circumstances; law and the judicial process acquire an aura of sanctity which resists easy adjustment. It was recently suggested to me that a further step toward demystifying Canadian trade policy had arrived in the form of a legal handbook on Canadian trade and investment policy. Hoping to find something similar to Eugene T. Rossides’ valuable U.S. Import Trade Regulation, I looked forward to adding Robert Paterson’s Canadian Regulation = of International Trade and Investment to – my bookshelf and thus acquire a comprehensive and authoritative handbook on the regulation of international trade and investment in Canada. That it included a comparison of Canadian laws and regulations with those in the United States, the European Community and Japan appeared to be a helpful bonus. Written by lawyers, none of whom had direct hands-on experience, this would be a good opportunity to test the shibboleths of the Ottawa trade policy community. Once it arrived in the library, the book was eagerly passed from hand to hand among the trade policy specialists gathered on the top floor of the Met Life Centre.
Chapter one, a largely self-contained contribution by Jock Finlayson, got us off to a good start. It furnishes a full and solid overview of the GATT and Canada’s interest in the preservation of a strong multilateral trading system. As such it provides an appropriate introduction to the heart of the matter, the following four chapters dealing with the tariff, import and export controls, non-tariff barriers (viz. dumping, subsidies and government procurement), and export financing. We have come to expect work of this quality from Finlayson.
Chapter two on tariffs proved to be more comprehensive than the title suggests: it covers the whole range of customs matters and opens with a discussion on the nature, sources and authority of Canadian trade law. The treatment is complete and readable, an unusual virtue in books of this type. Given the complexity and obscurity of the issues, however, it is not surprising that errors of detail have crept in. For example, on page
52, the author suggests that the British Preferential Tariff no longer applies to New Zealand. New Zealand remains one of the primary beneficiaries of the BPT, but the legal basis for this treatment changed in 1982 as a result of a new Canada-New Zealand trade agreement which replaced the earlier 1932 agreement. Similarly, on page 54, the 1981 Order-in-Council reducing certain customs duties resulted from an agreement with the EC compensating its members for reduced access to the Canadian market resulting from Canada’s global import quota on footwear. It had nothing to do with export quotas on certain types of footwear. Such errors, however, undermine credibility, an essential quality in a handbook. Chapter three on import and export controls really got off to a rocky start. Three examples taken from the first three pages illustrate the point:
• Paterson claims that the non-selective (i.e., non-discriminatory) application of Article XIX safeguards has raised the ire of developing countries. This is wrong. Rather, developing countries complain that whenever their exports threaten to become a major factor in the markets of industrialized countries, they face safeguard action, whether applied selectively or globally. During the Tokyo Round, contrary to Paterson’s view, the developing countries opposed selectivity while the EC supported it.
• Part IV of the GATT dealing with the special needs of developing countries contains no contractual obligations but is of a hortatory, best endeavours nature. Nor is it the responsibility of the UNCTAD. The last time I checked, the two organizations remain separate and GATT Part IV matters are reviewed by the GATT Committee on Trade and Development.
• Canada’s bilateral textile restraint agreements with Asian suppliers were not negotiated outside the GATT; rather, they were negotiated pursuant to the Arrangement Regarding International Trade in Textiles also known as the Multi-fibre Arrangement or MFA, a derogation from the GATT negotiated under GATT auspices and in place in various guises for more than 25 years. The MFA and its predecessors marked a frank recognition by GATT members that the special problems in textile trade could not be managed within the framework of Article XIX and needed special rules. I pick these three issues not because they are typical, but because they appeared one after the other in the opening paragraphs of the chapter. By this time, my confidence was somewhat shaken. Fortunately, the rest of the chapter did not duplicate the performance level of the first few pages. Once past the general policy issues, Paterson proved to have a much firmer grasp of the details of legislation.
Chapter four addresses familiar matter for the legal profession: dumping and subsidization, anti-dumping and countervailing duties and procurement preferences, all species of non-tariff barriers. In truth the chapter deals largely with the anti-dumping provisions of the 1984 Special Import Measures Act (SIMA) and adds to that a few pages outlining the countervailing duty provisions of SIMA and Canadian implementation of obligations arising out of the GATT Procurement Agreement.
The chapter would have been stronger and more persuasive if it had devoted some space to the policy considerations which underlie anti-dumping and countervailing duty laws and addressed the potential protectionist and anti-competitive effect of these laws. A more complete treatment of Canadian countervailing duty law would have brought out that much of the reason for enacting SIMA related to the fact that section 7 of the Customs Tariff Act provided an inadequate legislative base for imposing countervailing duties. Prior to 1977, there was no procedure at all and the introduction of regulations in 1977 was rightly considered an abuse of Parliament.
Talso question whether Canada’s historical reluctance to use countervailing duties resulted from the realization that the existence of Canadian federal and provincial subvention programs undermined our credibility in pursuing countervail. More likely, the combined effect of an administrative anti-dumping system in effect prior to 1968 and a highly flexible valuation system as well as the generally low level of government assistance practiced by Canada’s principal trading partners made countervail redundant. Certainly the existence of subsidies in the US has not acted as a deterrent there. The introduction of the quasi-judicial Anti-dumping Act of 1968, the increasing application by the United States of its countervailing duty law to domestic subsidies (the first being the 1973 Michelin tire case) and the increasing use of government financial assistance in Europe were the underlying policy reasons which suggested the need first for regulations and then for legislation.
Chapter five is devoted to a discussion of official export credits and as such includes an explanation of the services provided by the Export Development Corporation (EDC) and of the OECD arrangement on export credits. The chapter also includes a discussion of GATT obligations and US countervailing duty law and its potential impact on official export assistance.
Chapter six by Philip Raworth provides a very thorough and workmanlike overview of trade law in the European Community. It provides a particularly good explanation of the workings of the arcane Common Agricultural Policy, an issue that has confounded many others. The title of the chapter, however, is somewhat misleading. It deals with Community trade law and policy, not with EEC-Canada trade law, of which there is very little. As noted in the text, there are few binding bilateral obligations outside of the fisheries area. Trade between Canada and the Community is largely governed by the GATT, the 1976 Framework Agreement being little more than a statement of good intentions.
Chapter seven by Malcolm Smith, contains a curious mixture. The authors obviously decided that a handbook on Canadian trade law would be more valuable if it contained comparisons to the laws and practices of Canada’s three principal trading partners. Raworth took on the EC chapter and Smith, a recognized expert on Japan, took on Japan and the United States. Combining US and Japanese trade law in one chapter and thus providing a basis for comparison to Canadian trade law may have been the intended effect. The result is a comparison between US and Japanese laws and practice. The chapter stands largely on its own and has little to do with the rest of the book. It would have made more sense to have treated US and Japanese trade law separately and included some discussion of how these systems differed from the model followed in Canada.
The United States system is legalistic and transparent; the Japanese is highly flexible and not at all transparent. One of its main distinguishing features is the administrative decree. Only in Japan, for example, can a government forecast with precision how many automobiles its private companies will export and prove to be uncannily accurate. The book provides a sufficiently detailed description of the two systems to bring out this essential fact and explain why Americans have such difficulty understanding the nature of the Japanese import system. The differences between the two approaches to trade policy making also suggest why it is that Japan has been able to adjust more rapidly and smoothly to changing circumstances and why the US is having such difficulty adapting to changing comparative advantage. Both the description and analysis in this chapter are informative and convincing and make this one of the strongest parts of the book.
The book concludes with three chapters on international and domestic legal issues arising out of the regulation of investment and services. Chapter eight uses a detailed discussion of the GATT panel on FIRA practices to provide an occasion to discuss the nature of GATT dispute settlement procedures. It also includes a discussion of international law and trade and services, much of it centred on GATT and the codes. I found this rather strained and would have found the section more credible if it had included more recognition of the fact that trade in services is regulated by a range of bilateral and multilateral arrangements (e.g., in the air transport sector) but not by an all encompassing code such as GATT provides for trade in goods. The challenge of the current GATT consideration of trade in services is to determine whether such a code is both conceivable and negotiable. He does clarify, however, that in many respects discussion on trade in services is a surrogate for discussion on investment — many of the regulatory practices which impede the free flow in trade in services would be less discriminatory if there were no impediments to the right of establishment or, at a minimum, right of commercial presence.
Chapter nine provides a detailed discussion of current regulation of foreign direct investment in Canada resulting from the 1985 Investment Canada Act and the 1980 Bank Act. It includes a very brief historical introduction to the regulation of foreign direct investment in Canada but fails to include an explanation of the underlying policy reasons for these policies.
Chapter ten is a companion piece to chapter five in that it discusses in the main the services provided through the Export Development Corporation in the area of investment insurance.
Now for the hard question. Would I recommend that someone spend $78.00 to purchase this handbook? Is it an indispensible guide for businessmen, budding bureaucrats and students of Canadian trade? The answer is a qualified yes. It would be stronger if we were dealing here with a $20.00 softcover volume. Tolerance for miscues is directly related here to price. The book has many good points. It covers a lot of ground and it covers most of it very well. It is for the most part a reliable description of trade law and regulation; it is less reliable on the underlying economic and policy rationale for these laws. Perhaps my early mentors were right. A sound understanding of trade policy does require hands-on experience. If so, those with that experience should write. Otherwise, we will be forced to continue to rely on a book marred by enough errors and misconceptions to require caution in its use. There are no competitors. Should a new edition be prepared, let’s hope the publisher will insist on a more careful editing job, especially in checking facts.
Only those who have penetrated the curtain can write with authority.
Donald Macdonald, who contributed a foreword, suggests that the authors were “handicapped by the fact that at important points the background to both law and policy is not in the public area, but still behind the curtain of departmental confidentiality.” That too suggests that only those who have penetrated the curtain can write with authority. Unfortunately, most of them don’t write. The current trade policy agenda in Canada is about as charged as it could possibly be. We are simultaneously negotiating the most far-reaching and comprehensive bilateral agreement ever contemplated in Canada and actively participating in the eighth round of GATT multilateral trade negotiations. At the latter talks, in addition to consideration of the more traditional range of tariff and non-tariff matters, the scope for binding agreements is being expanded to include intellectual property, trade in services and trade-related investment issues. Surely, there is need here to inform interested Canadians of more than the bare outline. At a later stage, Canadians will need credible and detailed explanations and handbooks. Who will rise to this challenge?
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Originally published in bout de papier, Vol. 5, No. 1 (1987) — Spring 1987 // Printemps 1987, pp. 39–43. Read the rest of this issue →
