The Importance of Rules-Based Trade

International trade is a key driver of Canada’s, and in particular, Saskatchewan’s economy. Our ability to export our rich resources, crops, and livestock depends on a system of rules that keeps markets open and fair. Farms, ranches, and agri-food businesses rely on the predictability and transparency afforded by global rules-based systems. When these systems function well, producers gain stable access to markets, vital when over 70% of our crop production is sold beyond provincial borders.

The Historical Evolution of Rules-Based Trade

Throughout history, trade has been interwoven with foreign relations, diplomacy, food security, and regrettably, war. War was often used to gain access to land in foreign countries, such as mineral-rich land or fertile crop lands. In peacetime, trade flourished in the Ancient World as countries sought to increase wealth. Following the Dark Ages, the birth of the Renaissance witnessed a flourish of trade. One example is the British Royal Charter of December 31, 1600, which established the East India Trading Company, primarily focused on trade in spices and silk.

By the late 20^th Century, in the wake of the Great Depression and the Second World War, the United States and the United Kingdom worked together to put a new set of international institutions aimed at reducing the likelihood of conflict in global affairs in place. These included:

• The United Nations, to address political conflict.
• The International Monetary Fund, to limit strategic currency devaluations.
• The World Bank, to support development and reduce inequality.

A fourth institution, the International Trade Organization, was envisioned but never materialized. Instead, the General Agreement on Tariffs and Trade (GATT), signed by 24 countries in 1947, became the de facto institution for managing international trade rules. GATT remained in place until 1995, when the World Trade Organization (WTO) came into existence.

These institutions marked the turning point toward a truly rules-based approach: , quotas, and subsidies became subject to negotiated, legally-binding agreements. This shift provided nations like Canada and provinces like Saskatchewan with clearer paths to compete on fairer terms.

Trade Liberalization and Globalization

Beginning in the 1980s, numerous industrialized economies sought to reduce tariffs and other barriers to international trade. Formal negotiations under GATT helped drive this process and improve global trade and negotiations between the member countries. Between 1947 and 1986, seven rounds of negotiations were held. The eighth round, known as the Uruguay Round, took place between 1987 and 1994 and led to the creation of the WTO. This milestone integrated intellectual property rules into trade governance and, for the first time, brought agricultural tariffs under WTO oversight.

Before GATT, governments frequently used tariffs to protect domestic industries from international competition, especially when foreign producers could offer lower prices than domestic. In agriculture, tariffs of 200% or more were common, effectively blocking imports. Alcohol, considered an agricultural product, often faced high tariffs; foreign-produced wine, for instance, was taxed heavily to protect domestic wine production.

The WTO helped standardize trade rules and reduce these barriers. As tariffs fell, global trade volumes surged. The figure below shows a 4,500% increase in global trade between 1950 and 2024, with a sharp rise after 1995. This confirms that trade liberalization has significantly benefited economies worldwide.

Trade Dispute Settlement

Today, the WTO stands as the centerpiece of the modern rules-based trading system. One of its unique features is its ability to resolve trade disputes between Member Countries. It is the only international institution with a mandate capable of enforcing compliance with its rulings. 164 Member Countries, including Canada, have agreed to a set of transparent, non-discriminatory, and enforceable rules designed to promote certainty and fairness.

The WTO’s Dispute Settlement Mechanism (DSM) allows Member Countries to bring a case against other Member Countries when they believe trade rules have been violated. Over the past 30 years, 641 disputes have been filed, and over 350 rulings have been issued. The number of disputes has declined in recent years, as compared to the first decade following the launch of the WTO, as is illustrated below.

Rulings by the DSM allow a country to apply retaliatory tariffs, normally prohibited, on imports from the offending country. These tariffs remain in place until the value of the violation is compensated. As an example, if Country A proves that Country B’s actions cost it $50 million in lost trade value, Country A may impose tariffs on Country B’s exports until the full compensation value has been reached.

No other international institution has the authority to enforce rules in this way. This year alone, Canada has taken trade disputes to the WTO because both the US and China placed extra tariffs on Canadian goods like steel, aluminum, forest products, pork, seafood, and canola. Canada argues these tariffs break international trade rules and hurt farmers and exporters. The WTO process is meant to sort out whether those tariffs are fair or not.

Rises in Protectionism

Recently, there has been a rise in protectionist policies, with tariffs used to shield domestic industries or as a political tool. Politicians have campaigned on promises to protect local jobs and industries from cheaper imports. Tariffs raise the cost of these imports, making them less competitive and allowing the higher-cost domestic production to flourish. However, this comes at a cost: consumers pay more, whether for domestic goods or tariff-limited imports.

Tariffs applied for political reasons violate WTO commitments. WTO rules allow trade barriers only when there is a legitimate risk of importing a product, such as a disease or contamination. For example, when BSE (mad cow disease) was detected in Canada back in 2003, many countries temporarily banned the import of Canadian beef until Canada could demonstrate the safety of beef production.

Today, many politically motivated tariffs violate WTO rules. We just have to look at the current tariff violations Canada has in the dispute system currently, or our own counter-tariff measures we have imposed before the dispute had been settled. For smaller, export-oriented countries, filing a complaint can be risky, especially if the offending country is a major trading partner. On top of that, WTO dispute resolution can take three years or more, while political leadership may change in the meantime. Regardless of the outcome, rules-based trade suffers, and consumers bear the cost.