Mr. Speaker, when Canada and the United States negotiated the free trade agreement that came into effect in 1989, both sides reserved their GATT rights. As such the United States retained its ability to take action under section 22 and Canada retained its quantitative restriction under article XI of the GATT.
The reservation of GATT rights was also incorporated in the North American free trade agreement five years later. In effect both sides, the Americans and the Canadians, agreed that a negotiated settlement on bilateral agricultural trade would be best achieved in the Uruguay round.
From 1982 to 1990, Canadian exports of refined sugar to the United States were subject to an absolute quota representing 1.1 per cent of the total U.S. imports. This roughly amounted to about 12,000 tonnes per year. Producers of raw and refined sugar from other countries were also limited to various shares of total U.S. imports.
In 1989 a GATT panel, at the request of Australia, concluded that the United States mechanism for imposing sugar import restrictions was in violation of the GATT. In 1990 the United States implemented the panel recommendation by converting its absolute quota on sugar into a tariff rate quota that essentially had the same effect as the quota it replaced.
For Canada, implementation of the GATT panel recommendation had an unexpected effect. The United States decided that due to the existence of the recently signed free trade agreement it would not apply the tariff restriction to Canada. That was a unilateral decision.
As a result, our exports of refined sugar, which had consisted exclusively of sugar made from Canadian grown sugar beets, have increased since 1987 from the previous annual level of 12,000 tonnes to an average of approximately 35,000 to 38,000 tonnes per year in the last three years. In fact we were able to triple the exports of refined sugar to the United States following the unilateral interpretation of the free trade agreement.
With respect to products containing sugar, the United States had an absolute quota in place as far back as 1983. Canada, like other countries, has always been subject to these quotas. During the last three to four years Canadian producers, for example, due to the high quality of their products and very competitive prices, have accounted for the vast majority of U.S. imports of sugar.
In 1989 the United States converted its old tariff schedule to the harmonized tariff schedule. In the process a U.S. custom service reclassified powdered drink bases, commonly known as crystal drink mixes, into a non-quota item. That has caused the Canadian exports of crystal drink mixes to the United States to increase rapidly.
In the case of refined sugar, the United States will apply a tariff quota of 22,000 metric tons, as of October 1, 1995. Canadian exports of refined sugar will be subject to that quota. As well, a tariff quota of about 64,000 metric tons has been in effect since January 1 of this year and includes crystal mixes for drinks and other products containing sugar.
The government has pressed the United States to allocate to Canada a specific share of both sugar and sugar containing product tariff rate quotas but the United States has decided not to do so. We regret this decision but it must be recognized that the United States is under no international trade obligation to allocate the tariff rate quota by country.
The imposition of unilateral retaliatory measures as requested by the bill would be a violation of Canada's international trade obligations as contained in the NAFTA and the agreement establishing the World Trade Organization.
International trade agreements define the circumstances which can justify the taking of retaliatory measures, as well as the specific procedures to be followed before a party can invoke the right to impose such measures. A party must first ask that consultations be held to find a solution to the problem. If such consultations do not bring mutually satisfactory results, the aggrieved party can ask that a dispute settlement panel be set up. If the panel concludes that the contentious action violates the contractual trade obligations of the other party, and if that party refuses to amend its action or to provide satisfactory trade concessions then, and only then, can retaliatory measures be taken. Moreover, the panel must be convinced that the proposed retaliatory measure is not disproportionate, given the prejudice suffered. By proposing unilateral retaliatory measures, Bill C-311 goes against the arbitration procedure.
Consequently, the United States might decide to challenge our action under NAFTA, or under the agreement establishing the WTO. Moreover, Canadian exports of sugar, and possibly some non-sugar products, might be adversely affected.
Bill C-311 does not take into account Revenue Canada's anti-dumping duty investigation into imports of refined sugar from a number of countries, including the United States. The investigation was initiated following a complaint by the Canadian Sugar Institute earlier this year and a preliminary finding of dumping was announced on July 7 of this year. As a result, Revenue Canada assessed provisional anti-dumping duties on imports of refined sugar from the United States.
The investigation is following its due course in accordance with Canadian trade remedies. The investigation has until October to make a final determination of dumping. This will be followed by the decision of the Canadian international trade tribunal on whether the Canadian industry is being injured by such imports. The decision of the Canadian international tribunal is also expected some time in November of this year.
I would also like to mention an important development currently taking place in the United States that could further complicate the U.S.-Canada trade in sugar and products containing sugar. I am referring to the proposed U.S. legislation to expand the U.S. embargo on Cuba, the Cuban Liberty and Democratic Solidarity Act, 1995, also known as the Helms-Burton bill.
There were serious concerns earlier this year that the proposed legislation would lead to a ban on imports of Canadian sugar and possibly products containing more than 35 per cent sugar on the grounds that Canada imports raw sugar from Cuba. This would have affected over $500 million in Canadian exports of sugar and products such as confectionery, chewing gum, jams, jellies, gelatin mixes, as well as products already subject to U.S. quotas.
Canada has been actively registering its opposition to the proposed legislation with the U.S administration in Congress. A strong diplomatic note was delivered to the United States administration and ministers have raised Canada's concerns with their U.S. counterparts on numerous occasions. Furthermore, the Canadian ambassador in Washington has written to many congressional representatives on the issue. The government has emphasized that if legislation is passed banning the import of sugar and products containing sugar, Canada would have no option but to respond firmly.
We are pleased to see that subsequent revisions to those proposed bills have been made by congressional committees in the weeks prior to the summer recess of Congress as a result of Canadian interventions. Changes to the legislation are now being proposed that could reduce the impact on Canadian exports in sugar and products containing sugar. Most of the sugar provisions in the House bill were removed before the bill proceeded to the floor.
Unilateral retaliation not sanctioned by either the World Trade Organization or NAFTA dispute settlement mechanism would therefore not be helpful at this time.
Finally, on behalf of the government I would like to recognize the enormous work and valuable effort of the sugar caucus led by my colleague, the MP for Fundy Royal. I assure the House as well as my colleague from Fundy Royal that the government is fully seized of the importance of resolving the issue.