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Winnipeg Free Press, Friday, Dec 19, 2003


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 Organization.

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 crippling retaliation.

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 Washington apples.

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 cases.

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 costs.

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 rules.

We are powerless even to retaliate because we face the behemoth alone.


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