NAFTA vulnerable

Lawrence Solomon
National Post
March 1, 2008

Barack Obama and Hillary Clinton threaten to tear up NAFTA, arguing – correctly – that high U.S. environmental standards place U.S. workers at a disadvantage in America’s trading relations with Canada and Mexico.

Canadians have good reason to be concerned. The U.S. does have higher environmental standards. Canada is vulnerable in a renegotiation of NAFTA.

“I’ve been very concerned for a couple of years now,” Canadian International Trade Minister David Emerson stated, adding the threat that Canada might play its oil card in an attempt to discourage a renegotiation. “The rhetoric of protectionism has been creeping, it’s been getting more strident, it’s permeating Congress, protectionist groups are flexing their muscle.”

Emerson knows of what he speaks. In his former role, as chairman of the Canadian Pulp and Paper Association, he oversaw one of Canada’s least economic and most polluting industries. Without government subsidies, logging and pulping of many Canadian forests would swiftly end, pleasing Canadian environmentalists, enriching Canadian taxpayers, and thrilling U.S. logging companies, whose market share, and profits, would suddenly soar. U.S. loggers have long battled Canada’s forest export business, which is run principally to keep our forest towns alive – for this reason, government regulations actually require forest companies to keep logging at a loss, in order to maintain jobs for forest workers.

U.S. forest companies are livid at what they rightly see as a mockery of free trade. They want forest companies in Central and Western Canada to depoliticize the industry and trade freely. Their demand is simple: Let all of Canada’s forests run along the lines of the forest industry in the Atlantic provinces, where governments don’t depart entirely from free-market principles. And they are politically powerful, with no reluctance to wield a two-by-four. If the trade regimes between Canada and the United States get renegotiated along environmental lines, the U.S. logging interests will obtain support from environmental groups on both sides of the border, as well as from the U.S. business and political lobbies.

The bitter dispute between the two countries over softwood lumber was not settled by the Softwood Lumber Agreement that they signed in September, 2006 – it continues to this day. In December, 2007, the U.S. renewed litigation, claiming that Canada has been violating the SLA since January of last year, leading to illegal exports amounting to hundreds of millions of board feet between January and June, 2007, alone. Under the SLA, export limits kick in as lumber prices fall. The prices have fallen, but the Canadian government has failed to impose the taxes necessary to restrict exports. With the dramatic downturn in the U.S. housing market, and the likelihood that the forest industry will continue to see low prices, the prospect looms large of a renewal of a bitter and protracted cross-border battle.

In the new round of litigation, in the London Court Of International Arbitration, the Americans again complain of “the Canadian system of timber pricing, which the United States considers to be unfair. … Following investigations by the United States Department of Commerce and the United States International Trade Commission, the United States determined that Canadian softwood lumber imports were being subsidized and were being sold at less than fair value.”

The softwood dispute is now contained within the Softwood Lumber Agreement, where it is likely to become mired in endless rounds of litigation, to the frustration of the American lumber interests. But if a Democrat gets elected president in November, and the new president is forced by circumstances to keep his word and reopen NAFTA, softwood lumber is sure to become part of the negotiations.

Emerson alluded to just such a scenario this week: “The biggest risk is that there will be periodic outbursts of protectionist sentiment. It may be softwood lumber one day, it may be beef another day. The real risk is that you lose the ability to resolve these disputes in a relatively neutral and objective way,” he said.

What he didn’t say is that his forestry industry provides the most fodder for U.S. claims of low Canadian environmental standards. And that the best way to get the Americans off our backs is not to threaten them by playing the oil card, but by cleaning up our own environmental act by letting the free market operate in our forests.

Lawrence Solomon is executive director of Energy Probe and the Urban Renaissance Institute.

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