Ambassador Wilkins and his Softwood Shenaningans

Anyone who reads my blog on a regular basis knows that I am not anti-American. In fact, some colleagues and friends accuse me of being too pro-American (silly people). I like George W. Bush, support the war in Iraq, and believe Americans to be a good and generous folk. We share the world's largest undefended (more or less) border, are each other's largest trading partner (e.g., the Province of Ontario trades more with the US than does Japan) and are military allies in NATO and NORAD. I like Americans and find the reflexive anti-Americanism here in Canada to be juvenile. That being said, I am not stupid or blind.

Our two nations have been embroiled in a trade dispute since 1982 over Canadian softwood lumber sold to the US market. In 2004 powerful American lumber lobbies obtained a ruling by the US International Trade Commission (an independent agency of the US government) that Canadian provinces unfairly subsidize softwood lumber, giving an unfair advantage to Canadian producers of softwood lumber. The US imposed punishing import duties (27% until last year, when it was dropped to 20%). Thousands of lumber workers in BC have lost their jobs and a number of mills have closed.

Canada disagrees with the US Commission?s 2004 ruling and with other past US government trade restrictions and appealed the imposition tariffs to the relevant North American Free Trade Agreement (NAFTA) panels and to the World Trade Organization (WTO). NAFTA determines the trade rules among Canada, the US and Mexico to ensure free trade among these countries. The WTO is a multilateral trade agreement that establishes trade rules for the many nations which are members. In both trade dispute resolution processes Canada has prevailed. There have been numerous victories for the Canadian position, along the way. For a chronology of this saga go here.

The latest ruling was by the NAFTA Extraordinary Challenge Committee on August 11, 2005, a body the US insisted on creating as the entity to hear final appeals under NAFTA. We won. What is the reaction of the US government? They are ignoring the ruling and are continuing with the tariffs. For the obsessive, here is a backgrounder on NAFTA, and on Chapter 19, the dispute resolution portion.

Rubbing salt in the wound, the US government provides the US lumber industry a portion of the unfair and illegal tariff collected. Not only are Canadian lumber companies hit with illegal tariffs, but their US competitors are subsidized with their money. Nor is the US government prepared (contrary to Chapter 19 of NAFTA) to refund the $5 billion in countervailing duties improperly collected to date. (Boo. Hiss. Boo.)

The new US Ambassador to Canada has commented on this dispute.

Andrew Duffy
Canwest News Service
August 26, 2005 OTTAWA -

U.S. ambassador David Wilkins says Canadian politicians should stop their "emotional tirades" and order the country's trade representatives back to the bargaining table to reach a final settlement on softwood lumber.

Mr. Wilkins said Canadian officials should embrace negotiations, rather than trade litigation, to settle the softwood dispute. Otherwise, he suggested, they risk a trade war with multiple fronts.

"I don't think we need to go down another avenue, but we could," Mr. Wilkins warned. "We could start talking about import barriers by Canada on certain goods, like dairy and egg products and things of that nature, and broadcast regulations that are exempt from NAFTA."

While Prime Minister Paul Martin and the Liberal government pondered retaliatory action against the United States, Mr. Wilkins told the Ottawa Citizen's editorial board that he was disappointed Canadian trade officials refused to meet this week to discuss softwood.

That meeting, scheduled for Monday in Ottawa, was cancelled after International Trade Minister Jim Peterson said he needed time to consider all his options, including trade sanctions, in the wake of Washington's refusal to accept a key trade panel ruling. "Emotional press conferences are not going to settle the issue," Mr. Wilkins said.

"Canada needs to come back to the table. We need to close the door, roll up our sleeves and negotiate as need be, with good faith, and bring finality to it," Mr. Wilkins said. Simmering for decades, the softwood lumber dispute is now full boil after Washington announced it would ignore another trade ruling in Canada's favour -- this time from the final court of appeal established by the North American Free Trade Agreement.

Mr. Wilkins characterized that decision as a ruling that does not bring finality to the dispute: "It wasn't a settlement, it was a ruling. You have a difference in legal opinion." The U.S. ambassador, who assumed his new post two months ago, said Washington has not ignored the ruling, but holds a different legal opinion about its impact. [As I understand it, in essence, the opinion is that US domestic law prevails over international agreements.]

"This is obviously a complex issue: It has been going on for two decades. So I don't think you use that, the ruling of that panel on that one issue ... I don't think you use that as the genesis of the negotiations. These negotiations have been going on before that ruling; they'll go on after that ruling. But the entire issue needs to be
negotiated."

Many of the trade rulings that went in Canada's favour, he noted, have concluded that the provinces subsidize their lumber industries. That fact, he said, needs to be discussed before a final deal can be reached on softwood.

In 1993, NAFTA and WTO trade panels both found that while the Canadian lumber industry is subsidized, that assistance is not substantial enough to justify U.S. tariffs.

Subsequent rulings have supported those findings. Notwithstanding Ambassador Wilkin's admonishment, let me call his comments what they are. Unadulterated crap! I am a negotiator and a policy wonk by trade and have some understanding of how these things are supposed to work.

The "negotiation" Ambassador Wilkins want to have with the Canadian government has already taken place. It was a long and arduous process undertaken in good faith by Canada, the United States and Mexico. The provisions of the agreement resulted from much give and take by all concerned. The negotiation led to the signing by the parties, including the US government, of a free trade agreement we call NAFTA. NAFTA has specific terms and conditions and dispute resolution provisions.

The US International Trade Commission did rule in 2004 that Canada unfairly subsidized softwood lumber exports. Canada, in response, invoked the dispute resolution mechanism in NAFTA. We won. We earlier invoked the provisions of the WTO agreements. We won there. The US lost. Period and full stop. What part of that is hard to understand?

What Ambassador Wilkins wants to do is renegotiate NAFTA after the fact because the inefficient and protectionist US lumber lobby interests won't accept the decisions. I understand American politics enough to grasp why the Bush administration is caving in to their domestic lumber lobby. That does not make it right or acceptable.

Ambassador Wilkins says, "the entire issue needs to be negotiated." He is wrong. The US government needs to live up to its existing trade agreements with Canada.

Simple, eh.