US embassy cable - 05OTTAWA3511

C O N F I D E N T I A L SECTION 01 OF 02 OTTAWA 003511 
 
SIPDIS 
 
PASS USTR FOR DDWOSKIN, SCHANDLER 
 
E.O. 12958: DECL: 11/28/2015 
TAGS: KIRC, KPAO, EAGR, ECON, ETRD, OIIP, WTRO 
SUBJECT: WTO DOHA ROUND - CANADA: LOOKING TOWARD HONG KONG 
 
REF: A. (A) SECSTATE 211956 
     B. (B) OTTAWA 3484 
 
Classified By: Econ MinCouns Brian Mohler; reasons 1.5(b) and (d) 
 
1. (SBU) Summary:  Despite differences on the details, 
notably over the future of Canada,s single desk Canadian 
Wheat Board, Canadian WTO negotiators see themselves as 
working in close cooperation with the U.S. on the elements of 
a package for Hong Kong.  They stress that they have not 
given up on the original Hong Kong objective of achieving 
full agreement on modalities for agriculture and 
non-agricultural market access.  End Summary. 
 
2. (SBU) Econ MinCouns and econ officer met with Assistant 
Deputy Minister John Gero and Director General for Trade 
Policy Terry Collins-Williams of  International Trade Canada 
to share points in ref (A) and discuss Canada,s views of 
prospects for Hong Kong.  Gero noted the continuing close 
cooperation between U.S. and Canadian negotiators and 
stressed that we share the same broad objectives.  He said 
that Canada,s main ambition for a Hong Kong outcome is, in a 
word, ambition: achievement of the original objective of full 
agreement on modalities for all three pillars in agriculture, 
as well as on nonagricultural market access.  Canadian 
officials see Hong Kong as the last chance for a political 
deal that would set the stage for a timely conclusion of the 
agreements.  In their view, even if political leaders reach 
agreement, at least nine months, worth of technical work 
will be needed to deliver a package by December 2006.  In 
practical terms, therefore, the political agreement must come 
by February at the latest.   Gero observed that &ministers 
are really engaged now8 and that the desire for a result is 
clearly there among key participants.  He expressed anxiety, 
however, over the lack of intensive negotiation in the runup 
to Hong Kong, citing the fact that he is still in Ottawa and 
not in Geneva at this point in the proceedings as clear 
evidence of &process lacunae8 that may make it impossible 
to arrive in time at a workable package for ministers.  As to 
Canada,s role in the negotiations, he said that Canada,s 
chief advantage is in being &fleet of foot8; because 
Canadian negotiators are not trying to speak for large blocs 
of other countries, they retain flexibility that may help 
them move the negotiations forward.  In response to a 
question from EconMincouns, Gero speculated that the EU,s 
Trade Commissioner Mandelson probably has more room to 
maneuver on some of these issues, and hoped that he would not 
commit Lamy,s mistake at Cancun of waiting too long to move. 
 
 
3. (SBU) Gero and Collins-Williams offered the following 
snapshot of Canada,s positions on key issues: 
 
Agriculture 
 
Canada wants to see specific, large reductions in domestic 
support.  In this context, he characterized the U.S. offer as 
a serious one but urged a little more movement ) the U.S. 
should be offering cuts that go below actual spending, not 
just our legal ceiling.  On blue box measures, Canada 
supports a reduction to 2.5% of total spending but wants to 
see additional rules limiting what can be transferred into 
the blue box, e.g. countercyclical payments.  Gero described 
this as a key objective for Canadian farmers.  Predictably, 
our interlocutors offered a strong defense of the Canadian 
Wheat Board, complaining that efforts to include restrictions 
on state trading operations were outside the scope of a 
negotiation on export subsidies. 
 
On agricultural market access, Canadians are highly critical 
of the European position on sensitive products, describing it 
as a &false debate.8  In their view, the tariff formula and 
negotiations on sensitive products should be approached as 
separate issues; European conflation of the two is resulting 
in unproductive &mixing and matching8.  They are trying to 
convince the Europeans to divorce the two issues; our 
objective should be a methodology for overall reductions and 
a separate request-offer type negotiation on sensitive 
products.  This approach would allow the EU to move further 
on overall reductions while protecting sensitive products. 
Gero observed that, in the Canadian view, increases in 
tariff-rate quotas would yield the most measurable market 
access gains.  He noted that the U.S. and Canada are 
cooperating closely on this issue. 
 
Nonagricultural market access (NAMA) 
 
Canada and the U.S. are closely aligned on these issues. 
Canadians would like to see more sectoral initiatives; they 
also want to see Brazil and India, in particular, offer more 
cuts in applied rather than bound tariff levels.   They are 
also concerned that negotiations on non-tariff barriers are 
less advanced than they should  be, and that we need some 
practical resolutions in this area. 
Services 
Gero commented that &we haven,t come very far8 on this 
portfolio and said that Hong Kong should define both an 
overall  level of ambition and complementary bilateral 
mechanisms.  He described the European approach as &not 
saleable8 and supported the concept of &plurilateral8 
(e.g. sectoral) negotiations.  Predictably, he flagged the 
issue of Mode 4 - movement of professionals ) which has also 
been a difficult issue in the US-Canada-Mexico Security and 
Prosperity Partnership (SPP) talks.  While expressing his 
understanding of the Congressional position on inclusion of 
immigration issues in trade packages, he observed that &we 
won,t get India without this.8 
 
Rules 
 
Also predictably, Gero focused on our differences on rules, 
another bilateral sore point in light of the continuing 
softwood lumber dispute.  Canada wants to see greater 
predictability and better definitions. He called for more 
movement from the U.S. in this area, particularly on 
compliance, describing the U.S. position as outside the 
mainstream and saying that a total package will not be 
possible without something on rules.  (Comment: a recent WTO 
ruling upholding a USITC finding of threat of injury in the 
softwood dispute, effectively countering a NAFTA panel ruling 
on the issue, put a notable crimp in Canadian government 
claims to have "won every case8 in its multi-pronged 
litigation against U.S. countervailing duties.  End Comment.) 
 
Finally, Canadian officials praised continuing work on trade 
facilitation, which they see as a &sleeper issue8 of more 
practical importance to exporters than many of the 
higher-profile issues under negotiation. 
 
Hong Kong in the Canadian Political Context 
------------------------------------------- 
 
4. (C) Embassy Comment: The GOC is in the process of falling; 
the Prime Minister is expected to dissolve Parliament on 
Monday, November 28.  Trade Minister Jim Peterson, 
Agriculture Minister Mitchell, and development minister 
Aileen Carroll remain ministers until after the next 
election, expected for January 2006.  While Peterson and the 
rest of the Liberal leadership, now in full campaign mode, 
have chided the opposition for irresponsibly weakening 
Canada,s negotiating position on the eve of Hong Kong, (ref. 
B) permanent officials appeared unconcerned about any real 
repercussions.  30% of Canada,s GDP comes from trade (with 
the vast majority of its exports going to the U.S.) and the 
country is running a healthy trade surplus thanks to rising 
energy prices.  Despite periodic anti-globalization 
demonstrations, particularly in Quebec, public support for 
trade liberalization has been consistently in the 70 percent 
range since the key debate in the 1980s about the U.S.-Canada 
Free Trade Agreement; if anything, Canadians see multilateral 
liberalization as an effective hedge against overdependence 
on the U.S. market. 
 
5.  (SBU) The relatively decentralized Canadian government 
structure may be more of a hurdle for Canadian negotiators if 
they come under pressure on issues such as the Canadian Wheat 
Board and federal supply management schemes.  Canada lacks 
the equivalent of the U.S. interstate commerce clause; 
provinces remain responsible not only for large parts of 
government procurement, but also for key services such as 
securities regulations, and interprovincial trade barriers 
remain a headache for Canadian business.    Minister Peterson 
met with provincial trade ministers on November 22 (ref. b) 
to discuss Canada,s approach to Hong Kong.  While Gero said 
that the group had placed &no more8 emphasis on supply 
management than at previous meetings, provincial ministers 
made it clear in the press that they expect the government to 
stand its ground on supply management in the dairy and egg 
sectors.  The Canadian delegation, in addition to ministers 
and federal officials, will include not only representatives 
of Canada,s provinces, but also municipal officials. 
However, the expected Parliamentary delegation to Hong Kong 
is now unlikely to materialize; campaigning will have begun 
in earnest by early December. End Comment. 
 
 
 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
WILKINS