Canada, U.S. find a trade solution
by Margret Kopala

Published in the Ottawa Citizen, March 15, 2008

You have to hand it to the Americans. The U.S. softwood lumber market, not to mention the global economy is tanking, because of their self-inflicted subprime mortgage crisis. Nevertheless, they have the audacity to haul Canadians into arbitration for failing to anticipate it.

The U.S. housing collapse means less softwood lumber is required for building houses. Not content, however, with seeing the Canadian softwood industry on its knees, the U.S. government invoked the provisions of the 2006 Soft Wood Lumber Agreement last summer and accused Canada of failing to abide by agreed export quotas based on "anticipated consumer demand." Now, the London Court of International Arbitration has slapped both countries on the wrist for having struck a substandard agreement and returned them to their sandboxes to brood over their pyrrhic victories.

Are there lessons here? You bet. Especially for those concerned about the North American Free Trade Agreement.

Softwood lumber goes to the heart of the NAFTA. Spanning two centuries, disputatious protectionism has characterized Canada-U.S. trade relations in this product. On the one hand, provincial governments protect their supply of softwood through Crown corporation ownership and the lumber-producing jobs that go with it. On the other, the U.S. protects its jobs while allowing private owners to sell their softwood to the highest (often offshore) bidder. The U.S. is usually left needing Canada's wood, even if it would prefer to have it in raw log form and free of the superior Canadian labour and technologies that turn it into lumber.

Canada signed on for free trade with the U.S. in 1989 amid much hope a historic trade irritant would be removed. But 20 years later, and following mind-numbing numbers of tribunals, trade panels and other assorted forums through which ongoing disputes might be settled, the Harper and Bush governments pulled yet another Soft Wood Lumber Agreement out of the hat with yet another dispute settlement mechanism.

That was two years ago. Eager for the Americans to repay the $5 billion duties promised in the 2006 agreement, Canadian lumber producers jumped at the deal only to be hit by the subprime crisis and another dispute. This time, though, it would be arbitrated by the impartial London Court of International Arbitration whose recent ruling, in the words of Terence Corcoran at the Financial Post, was nothing short of Solomonesque.

For free traders everywhere, this process is good news. Like Canada's Constitution, most observers fear that re-opening NAFTA would lead the continent into a black hole from which it might never recover. Yet however inadequate, the Softwood Lumber Agreement signed in 2006 demonstrates how the whole of NAFTA needn't be opened in order to attempt to solve specific issues within it. Using an impartial third-party arbitrator whose decisions are binding is a particularly good idea. Mr. Obama and Mrs. Clinton should take heed.

For the presidential hopefuls who are concerned about environmental and labour issues with Mexico, a prototypical dispute settlement mechanism is now available for those instances where NAFTA's Chapter 19 dispute settlement provisions don't work.

For the Harper government, a challenge larger than NAFTAgate will be retaining the services of International Trade Minister David Emerson. The former Liberal, whose admission to the Tory caucus angered his Vancouver constituents, has rightly indicated he wouldn't shy away from re-opening NAFTA. As a former chief executive officer of Canfor, Canada's largest lumber manufacturing company, and with deep expertise in many aspects of commerce and government, Emerson is also thoroughly plugged into British Columbia's potential as Canada's gateway to markets in India and China.

For Canada's lumber barons, grabbing the repaid duties and running might have seemed a good idea and in at least one case, it probably was. With share prices down, B.C. billionaire Jimmy Pattison launched a successful take-over bid of Canfor then promptly purchased a U.S. lumber mill. It's certainly one way to integrate the North American industry.

As for the rest of the lumber industry, it continues to tank while its Canadian and provincial governments face yet another day in the London Court of International Arbitration -- this time for allegedly subsidizing their softwood lumber industry by daring to assist workers who lost jobs because of the downturn in the U.S. housing market.

You have to hand it to those Americans.

MARGRET KOPALA’s column on western perspectives appears every other week.

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