Softwood lumber dispute highlights ‘free trade’ failure

October 13, 2016

By: Stock House

Thirty years ago; Canada and the United States negotiated their first, supposed “free trade agreement”, the Canada – United States Free Trade Agreement. One of the key trade irritants between the two nations at the time was the softwood lumber dispute between Canada and the U.S.

The nexus of the dispute was the claim by the U.S. that there was an intrinsic price for softwood lumber, totally independent of market fundamentals, and the U.S. insisted that its own calculation of that (arbitrary) number was the “correct price” for softwood lumber. As a result, any Canadian softwood lumber sold into the U.S. below this arbitrary number was deemed to be “subsidized” and then hit with punitive U.S. tariffs.

Supposedly, the initial Canada/U.S. trade agreement had a dispute resolution mechanism. The problem was that the panel which heard such disputes was only able to issue non-binding decisions – the proverbial toothless tiger.

Thirty years later; nothing has changed. The U.S. continues to assess punitive duties on Canadian softwood lumber exports to the U.S. It continues to insist that it is able to dictate the “correct price” (the U.S. price) for softwood lumber, irrespective of the supply/demand fundamentals for Canadian producers. The U.S. position is totally outside of all previous precedents when it comes to assessing tariffs on natural resource products.

The U.S. has lost several hearings on this issue but simply refuses to rescind its tariffs on Canadian softwood lumber. The bottom line is that though there is supposed “free trade” between the U.S. and Canada, Canadian softwood lumber producers are limited to a fixed quota in terms of their allowable market share. In other words, with respect to softwood lumber, there is no “free trade” between Canada and the U.S., and there has been no free-and-unimpeded trade of this export in the 30 years of “free trade” between the two nations.

The latest adjudication on this dispute imposed a “standstill period”, prohibiting further legal challenges. During this period of time, negotiators on both sides were assigned the task of resolving a dispute that could not be resolved prior to the era of supposed free trade between Canada and the U.S., and has not been resolved during the three decades of supposed free trade.

Now this standstill period has expired, and naturally no resolution has been reached. This should not be a surprise. The United States has been found to be in violation of international trade rules (via decisions of the WTO) more than any other nation. Indeed, a double standard in international trade is a long, U.S. tradition.

The world’s first quasi-free trade agreement was GATT, the General Agreement on Trade and Tariffs. Every other nation in the world agreed to a common set of rules – except the United States. The U.S. would only sign the GATT agreement after being granted a 25-year exemption from GATT rules.

During the period of this grandfather clause, nations selling their goods into the U.S. were required to follow one set of rules in their international trade, while the U.S. was allowed to use its own rules. No such exemption has been granted in any of the Canada/U.S. trade agreements, but the U.S. continues to make up its own rules.

U.S. trade policy has been consistent, over a span of well over half a century. When trade rules operate in favor of the U.S. it abides by those rules. When the rules operate against the interests of U.S. corporations, it simply ignores the rules – and does what it pleases. After 60+ years of this trade hypocrisy, one has to ask the question: will the United States ever abide by international rules on trade, while it continues to sign and push through more of these bilateral and multilateral trade agreements?

For Canadian companies seeking to produce and sell softwood lumber, it is a question which they have been asking themselves for three decades. And thirty years later, the answer still seems to be “no.”

By: Stock House

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