Winnipeg Free Press, Friday, Dec 19, 2003
LOSE IN NAFTA, WIN IN WTO
by Farnces Russell
How best can Canada protect its trading interests? Alone confronting
America? Or in collaboration with 145 nations?
Last week's coincidental culmination of the steel and softwood lumber
disputes provides definitive proof of the perversity of the North
American Free Trade Agreement and the advantage of the World Trade
WTO operates under international trade law that can only be changed by
agreement of all 146 member states. If a member won't comply,
retaliation is authorized. WTO levels the playing field between big and
small, powerful and powerless.
NAFTA operates under American trade law, which the U.S. is free to amend
at will. Isolated in this relationship of stark unequals, Canada is
incapable of defending itself without fear of massive reprisal and
Nor can Canada appeal to the WTO if it loses before NAFTA. NAFTA Article
103:2 reads: "In the event of any inconsistency between this Agreement
and such other agreements, this Agreement shall prevail."
In March, 2002, U.S. President George W. Bush imposed punitive tariffs
on steel imports from the European Union and seven other nations. WTO
ruled the tariffs illegal and gave the U.S. until Dec. 10 to scrap them
or face $250 million in authorized trade reprisal. The New York Times
said the Europeans plotted retaliation in this U.S. election year with a
precision that Karl Rove, Mr. Bush's chief political advisor, "must have
grudgingly admired." Specific goods from Mr. Bush's key must-win states
were targeted: Florida oranges, Arkansas rice, Carolinas textiles,
Midwest and California agricultural commodities and Oregon and
The White House dropped the tariffs.
Continued The Times: "The raw political fact remains that the WTO made
the price of protecting the steel industry simply too high. Bush's
decision to comply fully with the ruling helped establish the trade
organization's authority, showing that even the world's largest economic
power had to bend to its rulings."
Now consider softwood lumber. For 40 years, from the inception of the
world trading system in 1947 to 1986, the U.S. never levied either
countervailing or dumping duties against Canadian softwood lumber. From
1979 to 1986, more than 90 per cent of Canada's lumber exports to the
U.S. were tariff-free.
Canada's lumber industry blossomed. It captured 37 per cent of the U.S.
market and supported over 200,000 jobs, 12,000 mills and logging
establishments, 1,200 communities and exports worth well over $12
billion. All this economic activity was buttressed by the 1971
Employment Support Act cushioning Canadian industry against the effects
of U.S. import surcharges.
Then in 1986, the new Conservative government of Brian Mulroney decided
to seek a free trade agreement with the U.S. For the first time ever,
the U.S. launched a countervail challenge to Canada's softwood lumber.
The Mulroney government's response was to drop the Employment Support
Act and begin a powerful propaganda campaign to discredit
multilateralism, a campaign that required it to abort an international
trade panel just as it was preparing to rule that first U.S. countervail
action illegal. Canada's lumber industry has undergone almost ceaseless
U.S. trade harassment ever since. Harassment took a quantum leap with
the nefarious Byrd amendment. Passed by Congress in 2000, it confiscates
money from any foreign company daring to compete successfully against
U.S. industry. All duties collected by the U.S. government for alleged
dumping and subsidy violations are remitted to the companies filing the
WTO recently ruled the Byrd amendment illegal. But that doesn't help
Canadian softwood companies. Operating under NAFTA and so fully exposed
to U.S. trade law with no recourse, they have already poured $1.7
billion in fines into American coffers. And all this on top of punitive
27.2-per-cent duties and at least $200 million and climbing in legal
Former senior Canadian trade negotiator Mel Clark says it's all
unnecessary. "The WTO dispute settlement mechanism neutralizes power
discrepancies. A small country, if it has a good case, can win against a
big one. In lumber, we could get authority from the WTO to retaliate
against a very large amount of American trade."
The U.S. has now demanded total surrender from Canada to put an end to
its NAFTA agony -- an export cap at a 31.5-per-cent market share policed
by prohibitive duties plus a gift of almost $1 billion to the U.S.
lumber industry from those illegal U.S. fines. Said one angry lumber
executive: "It's like being held up at gunpoint, having all your money
taken and then being forced to pay the robber for his pains."
Call it Catch-49th Parallel. WTO can't help us because softwood is ruled
by NAFTA. And NAFTA is designed not to help us because U.S. trade law
We are powerless even to retaliate because we face the behemoth alone.