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U.S. DEPARTMENT OF STATE
CANADA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                              CANADA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                     1992      1993      1994

Income, Production and Employment:

Real GDP (billions of 1986 USD)     462.0     442.3     435.2 1/
GDP Growth Rate (pct.)                0.6       2.2       3.9 2/
Real GDP by Industry: (millions of 1986 USD)
  Manufacturing                    72,077    70,889    70,561 1/
  Finance/Insurance/Real Estate:   67,142    64,577    62,589 1/
  Trade                            49,390    48,371    49,088 1/
  Community/Business/
    Personal Services              49,785    47,686    45,965 1/
  Transportation/Communications    33,185    32,010    31,998 1/
  Construction                     22,624    20,184    19,892 1/
  Mining                           16,795    16,817    16,875 1/
  Agriculture                       8,221     8,231     8,037 1/
  Utilities                        13,144    12,541    12,416 1/
  Logging/Forestry                  2,158     2,182     2,159 1/
Per Capita Personal
     Disposable Income             13,843    13,149    12,618 1/
Personal Savings Rate (pct.)          9.6       9.1       8.9 1/
Labor Force (000s)                 13,797    13,946    14,133 3/
Unemployment Rate (pct.)             11.3      11.2      10.2 3/

Money, Interest Rates and Prices:  (end of period)

Money Supply (M2)                 282,323   273,333   262,426 4/
Bank of Canada Rate (pct.)           7.36      4.11      5.54 5/
Chartered Banks' Prime Rate (pct.)   7.25      5.50      7.00 5/
90-Day Commercial Paper (pct.)       7.46      4.03      5.40 5/
Consumer Price Index (1986 = 100)   128.1     130.4     130.8 E/
Annual Percent Change                 1.5       1.8       0.3 E/
Industrial Product
  Price Index (1986 = 100)          109.1     112.7     118.8 E/
Annual Percent Change                 0.5       3.3       5.4 E/
Exchange Rate (one C$ = US cents)
  (average annual noon rate)        82.76     77.53     74.58 5/

Balance of Payments and Trade:

Merchandise Exports               128,935   140,594   147,492 6/
  Exports to U.S.                  99,724   112,734   124,782 6/
Merchandise Imports               123,396   133,217   141,285 6/
  Imports to U.S.                  87,564    97,495   108,183 6/
Merchandise Trade Balance           5,539     9,377     6,208 6/
  Trade Balance with U.S.          12,160    15,240    16,599 6/
Current Account Balance           -21,917   -23,805   -21,971 6/
  Balance with U.S.               - 1,849   - 1,671   -   410 6/
Gold Holdings (millions USD)        478.0     287.0     210.0 5/
Official Int'l Reserves
  (millions USD)                   11,909    12,776    15,790 5/

Total Federal Debt:
  Accumulated Deficits
    (billions USD)                  386.0     396.2     405.0
  Federal Deficit                 FY91-92:  FY92-93:  FY93-94:
    (billions USD)                   33.5      32.6      29.2 7/


Note:  Converting the data from C$ to US$ distorts actual
growth and trend lines.

E/ Embassy projection.
1/ Second quarter (IIQ) 1994 (actual data), seasonally adjusted
at an annual rate.
2/ Percent change between IIQ 1994 and IIQ 1993.
3/ Third quarter average.
4/ M1 + chartered banks non-personal notice deposits + personal
savings deposits, as of 8/31/94.
5/ Third quarter end of period.
6/ First half of 1994 annualized.
7/ Federal Govt. projection for FY1994-95.  Canada's fiscal
year covers the period April 1 to March 31.



1.  General Policy Framework

    Canada is the world's seventh-largest market economy. 
Production and services are predominantly privately owned and
operated.  However, the federal and provincial governments are
significantly involved in the economy.  They provide a broad
regulatory framework and redistribute wealth from high income
individuals and regions to lower income persons and provinces. 
While the government has made progress on privatization,
government-owned Crown Corporations such as the Canadian
Broadcasting Corporation, the Canadian National Railway, the
Canadian Wheat Board, and provincial electric utilities still
play an important role in the economy.

    Canada is the most important trading partner of the United
States.  Although natural resources and related products remain
important components of the Canadian economy, the economy is
now fully industrialized and produces highly sophisticated
consumer goods and capital equipment.  As of August 1994,
Canada's annualized merchandise exports to the United States
were US$140.5 billion, and annualized merchandise imports from
the United States were US$118.2 billion.  Motor vehicles and
parts account for approximately 20 percent of U.S. merchandise
exports to Canada, followed by exports of machinery and
equipment and industrial equipment.  The stock of total foreign
direct investment in Canada in 1993 was US$113 billion, of
which US$70 billion or 62 percent was U.S. foreign direct
investment.  Roughly 40 percent of the assets of Canadian
manufacturing companies are foreign-owned; of this total, about
75 percent belong to U.S. firms.

    Federal government economic policies since late 1984 have
emphasized reduction of public sector interference in the
economy and promotion of private sector initiative and
competition.  Both federal and provincial governments also
undertook privatization of selected Crown Corporations.

    The deficit and related expansion of government debt are
the most pressing problems facing fiscal policymakers at the
federal and provincial levels.  Net public debt in FY1993-94
exceeded 74 percent of Gross Domestic Product.  Government
options to reduce deficits are constrained by high levels of
non-discretionary spending.  Statutory social transfers to
individuals and to provincial governments account for over 40
percent of the federal budget, and public debt service payments
account for about an additional 25 percent of spending. 
Further reductions of subsidies for regional development and
other remaining discretionary programs such as defense,
agriculture and foreign aid would require the government to
make difficult political decisions.  Nevertheless, the
government has stated firmly that it intends to reduce the
deficit to three percent of GDP by the April 1996-March 1997
fiscal year.

    The Bank of Canada is Canada's central bank.  The governor
of the Bank is responsible for conducting monetary policy.  The
Bank's main monetary policy tool is management of cash balances
with the chartered banks.  Other tools used to control the
money supply include open market operations, such as purchase
and resale agreements with money market participants, and the
bank rate (the interest charge on central bank advances), which
is set 25 basis points above the average yield on 90-day
Treasury bills at the weekly auction conducted by the Bank. 
The Bank may participate in the auction to influence its
outcome.


2.  Exchange Rate Policy

    The Canadian dollar is a fully convertible currency, and
exchange rates are determined by supply and demand conditions
in the exchange market.  There are no exchange control
requirements imposed on export receipts, capital receipts, or
payments by residents or non-residents.  The Bank of Canada
operates in the exchange market on almost a daily basis to
maintain orderly trading conditions and smooth rate movements.


3.  Structural Policies

    Prices for most goods and services are established by the
market without government involvement.  The most important
exceptions to market pricing are government services, services
provided by regulated public service monopolies, most medical
services, and supply-managed agricultural products (eggs,
poultry and dairy products).

    The principal sources of federal tax revenue are corporate
and personal income taxes and the goods and services tax (GST),
a multi-stage seven percent value-added tax on consumption. 
Federal personal and corporate income tax rates are comparable
to U.S. rates.  

    Federal government regulatory regimes affect foreign
investment (see section 5 below) and also U.S. firms in the
financial services sector.  Although foreign-owned bank
subsidiaries are subject to federal restraints on their
operations and growth, U.S. banks have been exempted from most
of these restrictions under the U.S.-Canada Free Trade
Agreement (FTA).  This continues under NAFTA.  However, the
federal government still prohibits the entry of direct branches
of foreign banks.  In mid-1992 Canada implemented further
financial sector reforms, which largely eliminated remaining
barriers among banks, trust companies and insurance companies. 

    Transportation policies:  The pro-competitive National
Transportation Act and its companion legislation, the Motor
Vehicle Transport Act, entered into force in 1988.  While
underscoring the continuing need to maintain high safety
standards, this legislation introduced a greater degree of
deregulation in the Canadian transportation industry.  

    Aviation is not included in the NAFTA.  Based on a mutual
desire for a liberalized North American market, in October 1990
the U.S. and Canada announced a joint initiative to negotiate a
new "open skies" agreement covering transborder air services. 
The last round of negotiations was held in December 1992.  On
September 27, 1994 U.S. Transportation Secretary Pena and
Canadian Transport Minister Young appointed personal
representatives to explore the possibilities of reopening
negotiations.  Formal negotiations were subsequently scheduled
for January of 1995 with the objective of rapid market
liberalization.

    Telecommunications Policies:  Canada's long-awaited
Telecommunications Act was proclaimed in force on October 25,
1993.  Among its provisions, the legislation allows the federal
regulator, the Canadian Radio-television and Telecommunications
Commission, to forbear from regulating competitive segments of
the industry, exempts resellers from regulation, and limits
foreign ownership of telecommunications firms to 20 percent. 
Carriers which operated in Canada prior to 1987, but which do
not meet the Canadian ownership requirements, are grandfathered
under Section 16 of the legislation.


4.  Debt Management Policies

    Canada's net public and private external indebtedness rose
from US$89 billion (26 percent of GDP) in 1984 to US$243
billion (44 percent of GDP) in 1993, a relatively high figure
for an industrialized country.  While foreigners have been
receptive to holding Canadian securities and such purchases
contribute to the strength of the Canadian dollar, the sharp
rise in external indebtedness has made the Canadian dollar and
economy increasingly vulnerable to shifts in international
investor confidence.


5.  Significant Barriers to U.S. Exports

    On January 1, 1989, Canada and the United States began to
implement a free trade agreement to eliminate, over a ten year
period, virtually all tariff and non-tariff barriers to trade
between the two countries.  The Canada FTA was suspended on
January 1, 1994, with the entry into force of the North America
Free Trade Agreement (NAFTA), which expands the free trade area
to include Mexico.  The NAFTA provisions go beyond the CFTA in
the areas of services, investment and government procurement. 
Canada passed implementing legislation for the Uruguay Round
agreement under the General Agreement on Tariffs and Trade, and
joined the World Trade Organization as a founding member.

    Nevertheless, a number of Canadian practices remain which
constitute barriers to U.S. exports to Canada.

    Canada applies various restrictions to imports of
supply-managed products (dairy, eggs, and poultry), fresh fruit
and vegetables, potatoes, processed horticultural products and
live swine.  The US continues to pursue these issues
bilaterally.  Regarding the supply managed commodities,
bilateral talks will be necessary to resolve contradictions
between Canada's Uruguay Round implementation and its
obligations under NAFTA.  

    Provincial legislation and Liquor Board policies regulate
Canadian importation and retail distribution of alcoholic
beverages.  The Canada FTA addressed a number of these policies
(listing, distribution, and pricing) and provided dispute
settlement procedures.  Provincial beer distribution practices
had been grandfathered under the FTA but were challenged by the
U.S. under the GATT.  The U.S. and Canada concluded a
Memorandum of Understanding in August 1993 which significantly
improved access to the Canadian market for U.S. beer.  However,
U.S. exporters have remained unhappy about provincial minimum
import price requirements and cost-of-service issues hinder the
importation of U.S. wine.

    Although some progress has occurred, problems remain in the
area of standards and labeling.  The FTA chapter on technical
standards provides for the accreditation of U.S. certification
organizations and testing laboratories in Canada.  The Canadian
accreditation agency, the Standards Council of Canada, has been
slow in effecting the necessary regulatory changes and in
reviewing U.S. applications, but in 1992 it accredited two
major U.S. testing and certification bodies, Underwriters
Laboratories and the American Plywood Association.  Since then,
three additional test laboratories -- Architectural Testing
Inc., ETL Testing Laboratories, and Dash, Straus & Goodhue
Inc., have been accredited.  To date, several accreditation
applications by U.S. certification and testing organizations
remain under review by the Standards Council.

    Under its Processed Product Regulations, Canada allows
imports of processed fruit and vegetables to be sold only in
certain limited-size packages (i.e. consumer sizes) for
products where Canadian standard sizes are prescribed. 
Following three years of formal U.S. government representation,
which prompted Canadian regulatory change in November 1993,
U.S. exporters have improved access to Canada's hotel,
institutional, and food service trade for a wide range of
products such as ketchup, french fries, pickles, etc. in sizes
larger than those stipulated in the regulations.  However,
trade remains hindered by strict packaging and labeling rules,
from which Canadian manufacturers received a temporary
(two-year) exemption, and plant certification requirements. 
For example, U.S. frozen french fry manufacturers remain unable
to capture a share of the Canadian food service market
estimated to be worth at least $40 million.

    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.  Although NAFTA has broadened the range
of professional equipment permitted entry, it has not provided
unrestricted access.

    Canada restricts the direct export of Pacific salmon by
requiring that a portion of the Canadian catch be landed in
Canada before being exported.  An interim agreement reached
following FTA dispute settlement permits direct export (i.e.
sale at sea) of a portion of the catch by Canadian licensees. 
The level of direct exports, however, has been disappointing. 
Following a mid-term review in February, technical changes were
made in the requirements for licensees.  A Canadian ban on
reexporting unprocessed herring, aimed at Japan, also prevents
Canadian processors from using U.S. refrigeration facilities. 
The U.S. government will continue to monitor developments.

    Canadian industries have used Canada's Special Import
Measures Act (SIMA) to restrict access to the Canadian market
by U.S. companies.  Dumping margins in successful cases
constitute a significant barrier to U.S. exports.

    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. 
Various restrictions on advertising aimed specifically at the
Canadian market restrict U.S. access to the Canadian market for
publications and print media advertising.  

    Under the Investment Canada Act, the Broadcast Act, and
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 (as amended by the FTA and NAFTA)
requires the federal government to review and approve foreign
investment to ensure "net benefit to Canada."  The Act exempts
from prior government approval foreign investments in all new
("greenfield") businesses, and acquisitions worth less than C$5
million (C$150 million for U.S. investors -- 1992 dollars). 
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 (including "split-run" editions),
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. 

    Further to the legal position on culture embodied in the
Investment Canada Act, Investment Canada enforces a federal
book publishing policy known as the "Baie Comeau Policy." 
Canada prohibits the majority acquisition of Canadian book 
publishing and distributing companies, and requires that
foreign-owned subsidiaries in Canada be divested to Canadians
within two years if the ownership of the parent changes hands. 
Exceptions to the policy permit direct acquisition if the
Canadian firm is in financial distress and no Canadian buyer
can be found.  Also, a foreign owner indirectly acquiring a
Canadian firm might not be forced to divest it if a transaction
of "net benefit" to Canada can be negotiated.  Investment
Canada also has specific policies regarding foreign investment
in the film distribution sector.  

    In the banking sector, the Bank Act of 1980 made chartering
of foreign-owned banking subsidiaries possible for the first
time.  However, foreign banks are still not permitted to enter
Canada as direct branches.  Foreign banks are also unable to
acquire a domestic Canadian bank, since no single entity
(person or corporation) can hold more than 10 percent of a
Canadian bank's capital.  The FTA eliminated other
discriminatory restrictions on U.S. bank subsidiaries in
Canada. 

    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 acquisitions of provincial firms are
subject to restrictions preventing foreign control.

    Where GATT Government Procurement Code or NAFTA
requirements do not apply, Canadian government entities follow
preferential sourcing policies favoring Canadian-based firms
over foreign-based firms. In addition, Government Services
Canada, the major federal procurement agency, maintains a
supplier development fund to promote new Canadian sources of
supply.  Canada's Federal and Provincial crown
(government-owned) corporations also follow strong "buy
national" or "buy provincial" policies.  Products affected
include telecommunications, heavy electrical and
transportation-related products.

    Canada pursues an "industrial benefits policy" which is
administered through a procurement review mechanism.  The
policy is intended to insure that major government procurement
projects provide long-term benefits for "the economic or social
development of Canada" beyond the immediate impact of the
procurement expenditures.  Frequently resulting in "offsets,"
this policy arouses considerable U.S. concern.


6.  Export Subsidies Policies

    Under the Western Grains Transportation Act (WGTA), the
Canadian government subsidizes rail transportation of western
grown wheat, barley, oats and many other agricultural
commodities intended for export.  The Free Trade Agreement
eliminated subsidies on agricultural products shipped to the
United States through West Coast ports, but not on those
shipped directly by rail or through Great Lakes ports.  Under
the terms of the FTA, Canada will terminate all export-based
duty remission schemes by 1998.  In the interim, Canada has
excluded exports to the U.S. in calculating the duty waived. 
In June, 1994, the GOC announced a proposal to phase out WGTA
payments over a five-year period.  Instead, the government will
make direct income support payments to farmers.

    Canada's production-based duty remission program provides
for the rebate of customs duties to qualifying foreign
automobile firms on their imports of automobiles and original
equipment automotive parts into Canada.  Under the program,
duty remissions are granted in proportion to the amount of
"Canadian value-added" generated by these firms in Canada. 
Under the provisions of the FTA, Canada has agreed to terminate
the program by 1996 and to limit application of the program to
the four companies with which agreements were already in
place.  NAFTA will not change these provisions.


7.  Protection of U.S. Intellectual Property

    The Canadian government has long-standing legislation to
protect intellectual property rights, and these laws are
effectively enforced. 

    1987 amendments to the Canadian Patent Act significantly
improved protection for patented drugs and was a positive step
in resolving some of the complaints voiced by the U.S.
pharmaceutical industry concerning alleged Canadian bias in
favor of generic drugs.  In February 1993 the Canadian
government amended the Patent Act to eliminate compulsory
licensing for pharmaceuticals, thereby extending patent
protection to the standard 20 years.  

    1989 amendments to the Canadian Copyright Act granted
explicit copyright protection for computer programs, and
provided a right of payment for retransmission of broadcast
programming as required by the FTA.

    In 1993 Canada proclaimed the Integrated Circuit Topography
Act, a law protecting semiconductor chip design.

    In January 1994, the Copyright Act was amended to reflect
the changes required by NAFTA, e.g., rental rights for computer
programs and sound recordings; protection for data bases and
other compilations; and increased measures against all
categories of pirated works.


8.  Worker Rights

    a.  The Right of Association

    Except for members of the armed forces, workers in both the
public and private sectors have the right to associate freely. 
These rights, protected by both the federal labor code and
provincial labor legislation, are freely exercised.

    b.  The Right to Organize and Bargain Collectively

    Workers in both the public and private sectors freely
exercise their rights to organize and bargain collectively. 
Some essential public sector employees have limited collective
bargaining rights which vary from province to province.  37.5
percent of Canada's non-agricultural workforce is unionized.

    c.  Prohibition of Forced or Compulsory Labor

    There is no forced or compulsory labor practiced in Canada.

    d.  Minimum Age for Employment of Children

    Generally, workers must be 17 years of age to work in an
industry under federal jurisdiction.  Provincial standards
(covering over 90 percent of the national workforce) vary, but
generally require parental consent for workers under 15 or 16
and prohibit young workers in dangerous or nighttime work.  In
all jurisdictions, a person under 16 cannot be employed in a
designated trade, or, in other words, become an apprentice
before that age.

    e.  Acceptable Conditions of Work

    Federal and provincial labor codes establish labor
standards governing maximum hours, minimum wages and safety
standards.  Those standards are respected in practice.

    f.  Rights in Sectors with U.S. Investments

    Worker rights are the same in all sectors, including those
with U.S. investment.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                              8,840
Total Manufacturing                                   34,062
  Food & Kindred Products                    3,645
  Chemicals and Allied Products              5,032
  Metals, Primary & Fabricated               2,745
  Machinery, except Electrical               2,240
  Electric & Electronic Equipment            1,623
  Transportation Equipment                   8,720
  Other Manufacturing                       10,059
Wholesale Trade                                        6,653
Banking                                                  823
Finance/Insurance/Real Estate                         12,242
Services                                               2,425
Other Industries                                       5,349
TOTAL ALL INDUSTRIES                                  70,395    

Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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