The World Trade Organization upheld a ruling against preferential treatment Canada gives to U.S. vehicles.
The three-member WTO appellate body announced Wednesday it had rejected Canada's bid for reconsideration of a February panel decision. That decision supported Japanese and European Union complaints against the laws.
As it stands now, Canada allows vehicles from big U.S. manufacturers like Ford, General Motors and DaimlerChrysler to enter the country free of charge. This deal is under the 1965 auto pact with the United States.
A 6.1 per cent tariff is imposed on imports from auto makers in other countries. Japan and the EU complained, saying the tariff violated fair trade rules and put them at a disadvantage.
The original panel upheld the Japanese-EU position. It also found that the Canadian requirement that U.S. auto makers build at least as many cars in Canada as they sell, worked as an illegal export subsidy, and should be dismantled.
Canada asked the appellate body to reverse the finding concerning the most-favoured-nation clause, which obliges WTO members to grant the same trade preferences to all trading partners.
Ottawa also argued that the requirement to build cars in Canada wasn't an export subsidy.
Canada's appeal was unsuccessful on both counts.
Foreign automakers were gratified by the WTO decision and impatient for action by Ottawa. They say it's time to create a new, level playing field in the Canadian auto market.
International Trade Minister Pierre Pettigrew said the government will examine the appellate body's report before deciding how to proceed. He did say Canada would honour its WTO obligations.
The government may not have much choice but to honour the ruling since the appellate body's decision is final. It's up to Canada to work out a time period during which it will bring its laws into compliance with the ruling.