WORLD TRADE ORGANIZATION
ORGANISATION MONDIALE DU COMMERCE
ORGANIZACIÓN MUNDIAL DEL COMERCIOWT/TPR/M/112/Add.2
30 July 2003
(03-4035)
Trade Policy Review Body
12 and 14 March 2003
TRADE POLICY REVIEW
CANADA
Minutes of Meeting
Addendum
Chairperson:  H.E. Mrs. Mary Whelan (Ireland)
This document contains the response from Canada to a question raised by the discussant at the
TPRB Meeting of Canada.1
__________________________________________________________________________________
Organe d'examen des politiques commerciales
12 et 14 mars 2003
EXAMEN DES POLITIQUES COMMERCIALES
CANADA
Compte rendu de la réunion
Addendum
Présidente:  S.E.  Mme Mary Whelan (Irlande)
Le présent document contient la réponde du Canada à une question soulevée par le
présentateur à la réunion de l'OEPC concernant le Canada.1
__________________________________________________________________________________
Órgano de Examen de las Políticas Comerciales
12 y 14 de marzo de 2003
EXAMEN DE LAS POLÍTICAS COMERCIALES
CANADÁ
Acta de la reunión
Addendum
Presidenta:  Ecxma. Sra. Mary Whelan (Irlanda)
El presente documento contiene la respuest a del Canadá a una pregunta formulada por el
ponente en la reunión del OEPC sobre el Canadá.1
                                                     
1 In English only./En anglais seulement./En inglés solamente.WT/TPR/M/112/Add.2
Page 3
QUESTION BY THE DISCUSSANT AND REPLY BY CANADA
Question 9
On federal and provincial financial assistance to businesses, what are Canada's views as to the
circumstances that warrant the granting of gover nment assistance and whether this may not impair
efficiency in an economy otherwise largely free of policy-induced distortions?
Response
In response, we are reproducing a section of a Department of Finance publication:
Agenda:  Jobs and Growth:  A New Framework for Economic Policy
Canada:  Department of Finance Canada, October 1994, pages 50-51
Business
The issue of government assistance to business is not black or white.  Assistance can sometimes
be justified:  for example, to counter subsidies by governments of competitor nations; or where
public "spillover" benefits may be very high (e.g., early stage R&D);  or where the short-term
cost, in terms of local job and income losses, of  deferring to market forces is judged to be
unacceptably high.
The right action will therefore always depend on striking a balance in the particular
circumstances.  But too often in the past, the presumed economic benefits flowing from various
forms of business subsidy have been overestimated and the broader job and income costs
significantly underestimated.  Among prominent examples have been a number of ill-conceived
industrial megaprojects.
Inappropriately designed assistance to business can be far more damaging to the economy, over
time, than a simple static accounting of costs and benefits might suggest.  This applies
particularly to those forms of assistance which help to sustain, or to subsidize investment in,
activities that are not competitive.  As the OECD Jobs Study concluded:  Subsidies tend to
operate in exactly the opposite way from what is  needed: they slow rather than stimulate
adjustment;  they discourage rather than encourage innovation;  and they tend to become
permanent.
There are two major ongoing costs in these circumstances:  (i) people and capital become locked
in dead-end situations, and (ii) the public resources required to sustain these dead-ends are notavailable to support constructive initiatives elsewhere or to reduce the deficit and, eventually, to
lower taxes.  For these reasons, reducing the kind of business support that inhibits economic
adjustment can lead to increasing  net job creation and income in the economy over time.  And
with the help of well-designed worker adjustment programs, the human cost of adaptation to
necessary economic change can be minimized (Box 8).WT/TPR/M/112/Add.2
Page 4
________________________________________________________________________
Box 8 A model of industrial adjustment: The steel industry
Canada's steel industry has had to grapple with all the challenges faced by many mature sectors in
the industrialized world:  i.e., overcapacity, low product prices and the emergence of new
technology.  These pressures forced Canadian stee l makers to restructure, including significant
lay-offs.  Employment in the industry has declin ed by about 25 per cent since 1988, with layoffs
totalling approximately 11,000.  Assistance to laid-off workers has been provided through the
Canadian Steel Trade and Employment Congress (CSTEC), a co-venture between the United
Steel Workers of America and Canadian steel producers.  Both federal and provincial
governments have also provided resources to CSTEC to assist steel workers through training andworker adjustment programs.  By early 1994, CSTEC had helped about 90 per cent of the laid-off
workers.  Approximately 70 per cent have now f ound new jobs with, on average, no loss of pay.
In light of these considerations, the 1994 budget announced reductions in business assistance.
Further steps should be taken to determine whether the redesign of certain subsidies and other
supports in, for example, transport and agriculture could lead to a more efficient transportation
system and to a more internationally competitive agri-food industry, better adapted to Canada's
inherent advantages.
In a similar vein, regionally-targeted assistance should be focussed on genuine economic
opportunities – tourism, for example – that have high potential to become self-sustaining.  This
implies a continued shift away from support of industrial megaprojects and toward creation of a
supportive environment for small local enterprise, as well as increased use of repayable
contribution or loans rather than grants.1
__________
                                                     
1 The support of public infrastructure is a separate matter, which, if wisely targeted, can yield significant
regional economic benefits.  See, for example, the subsequent discussion of the information highway.