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DE RUEHOT #0762 2731757
ZNR UUUUU ZZH
P 301757Z SEP 09
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 9898
INFO RHEHAAA/WHITE HOUSE WASHDC
RUEAIIA/CIA WASHDC
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UNCLAS OTTAWA 000762 
 
STATE FOR E, EB/DCT, WHA/CAN 
 
STATE PASS USTR (SULLIVAN) 
 
COMMERCE FOR ITA/MAC (WORD) 
 
TREASURY FOR IA (NEPHEW) 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA
SUBJECT: Canadian Government announces plan to eliminate tariffs on 
a broad range of manufacturing inputs 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY 
 
¶1.  (SBU) Summary:  Canada's plan to eliminate tariffs on a broad 
range of manufacturing should take effect in early 2010.  GOC 
submits that the elimination of tariffs for inputs in key 
manufacturing sectors will help facilitate economic recovery and 
improve Canadian competitiveness.  Critics in Canada argue that the 
unilateral move is more symbolic than substantive and offers an 
unfair advantage to protectionist economies that do not provide 
Canada with reciprocal market access.  End summary. 
 
Tariff Elimination Plan 
----------------------- 
 
¶2.  (U) As Canadian Prime Minister Stephen Harper prepared last week 
to meet with G-20 counterparts to discuss a range of subjects 
including trade protectionism, Finance Minister Jim Flaherty was 
unveiling a plan for tariff cuts that could save Canadian companies 
as much as C$300 million annually.  Under the proposed plan, Canada 
would cut to zero the Most-Favored-Nation (MFN) tariff on an 
extensive list of manufacturing inputs, machinery and equipment. 
 
¶3.  (U) The government rolled out an initial slate of tariff 
reductions in January 2009 that covered machinery and equipment. 
The new list includes items from over thirty chapters of Canada's 
tariff schedule.  Products subject to tariff elimination will be 
drawn from such areas as:  minerals, metals, textiles and fibers, 
chemicals, organic compounds, inks and dyes, plastics, rubber, furs, 
hides, wood, stone, cement, glass, tools, and additional machinery. 
The full list can be viewed at 
http://www.gazette.gc.ca/rp-pr/p1/2009/2009-0 9- 
19/html/notice-avis-eng.html#d101. 
 
Substance or Symbolism? 
----------------------- 
 
¶4.  (U) The government is cutting tariffs on goods used in the 
production process in the hope that this will reduce production 
costs and improve the competitiveness of Canadian industry, 
particularly automotive parts manufacturers, sawmills, and printing 
companies.   During the current period of consultation the 
government is encouraging industry to propose other tariff items, 
not currently listed, that should be considered for further tariff 
reduction. The consultative period ends in early November and the 
resulting tariff reductions are expected to take effect in early 
¶2010. 
 
¶5.  (U) While Minister Flaherty has stated that he would consider 
retaining certain tariffs if the seven-week consultation period 
yields a compelling reason to do so, his larger intention is to 
create a "Canadian advantage" by clearing the way for companies to 
retool with cutting-edge equipment sourced from global suppliers on 
a duty-free basis. 
 
¶6.  (SBU) From a U.S. perspective, the Canadian move should increase 
demand for industrial inputs originating in the United States and 
reduce transaction costs related to customs administration. 
Canadian trade officials see the tariff reduction as delivering 
positive dividends on many levels.  A senior Finance Ministry 
official enthused to EMIN recently that the unilateral tariff 
reductions served to renew Canada's commitment to the Doha Round of 
WTO talks and would encourage other industrialized democracies to 
emulate Canada's actions. 
 
¶7.  (SBU) On the other hand, critics of the policy here argue that 
bilateral trade in inputs and machinery between the United States 
Qbilateral trade in inputs and machinery between the United States 
and Canada is already relatively tariff-free and this move will 
reduce barriers to countries that have not provided Canada with 
reciprocal access to their own markets.  A worst-case scenario is 
that Canada would lose hundreds of millions of dollars of tariff 
revenue on inputs that would not be offset by increased foreign 
demand for manufactured outputs. Canada's National Post newspaper 
calls this a case of symbolic politics by a government eager to show 
itself as a free-trader in the G-20 in spite of the domestic 
ramifications. 
 
BREESE