Canada must be careful not to become the U.S.’s trade target

by Colin Robertson

The Globe and Mail
September 28, 2016

There are bumpy times ahead for global trade and especially for trade with the United States, our biggest trading partner. Canadian governments will have to be nimble lest we get sideswiped or become a target, as is already the case on softwood lumber.

On Tuesday, the World Trade Organization announced that the pace of global trade has slowed to recession levels and it warned of creeping protectionism. Anti-trade rhetoric is a central feature of this presidential cycle, breaking an 80-year consensus within the U.S. that supported open trade and the liberal rules-based international order.

In Monday’s debate Donald Trump again bluntly declared that the U.S. has to renegotiate its trade deals “to stop” countries, specifically naming Mexico and China, from “stealing our companies and our jobs.” A more nuanced Hillary Clinton repeated that she could not endorse the current Trans Pacific Partnership (TPP). Ms. Clinton has promised to name a chief trade prosecutor but in the debate she acknowledged that the U.S. has “5 per cent of the world’s population. We have to trade with the other 95 per cent.”

The most potent threat to Canada would be Donald Trump’s promise to renegotiate the North American Free Trade Agreement. In a report last week the Washington-based Peterson Institute concluded that there is “ample precedent and scope” for a U.S. president to unilaterally raise tariffs and that blocking efforts through the courts or Congress would be “difficult and time-consuming.” Trade expert Gary Hufbauer warned that “enormous economic damage will ensue.”

Meanwhile the clock is ticking on softwood lumber, the Freddy Krueger of trade disputes. Settlement in 2006 depended on the personal intervention of President George W. Bush, tired of having it as a drag on his discussions with Prime Minister Paul Martin and then Prime Minister Stephen Harper.

The 2006 agreement ran out last year and the cooling-off period concludes on October 12. Despite discussions between President Barack Obama and Prime Minister Justin Trudeau and the ongoing efforts of Trade Minister Chrystia Freeland and the United States Trade Representative Michael Froman, the U.S. industry soon will be seeking countervail duties on our lumber exports.

A resolution anytime soon is doubtful. With less than four months left in office, President Obama will spend his remaining political capital trying pass the TPP during the congressional lame-duck session following the November 8 election.

A congressional deal on TPP would likely oblige reopening the agreement. In the ensuing scramble, Canada’s supply management system for dairy products could potentially come into play. The Trudeau government should look at this as an opportunity to reform an inefficient system that costs Canadian consumers.

For now, Canadian negotiators need to understand the political geography around lumber (or timber as it is called in the U.S.) and reconcile the differences within Canada. The Maritimes, where most of the harvested land is in private hands, want a continued exemption from any managed trade deal. Quebec and Ontario have a distinct position. So does Alberta.

There are the differences between coastal and interior British Columbia, our largest lumber exporter. British Columbia’s protectionist policy on the export of logs needs reform. It not only incites U.S. trade action but it is a handicap in efforts to negotiate an economic partnership agreement with Japan.

Despite some initial wobbling, the Trudeau government is demonstrating a similar enthusiasm for freer trade as previous governments.

Ms. Freeland is an effective trade minister, especially in working the political relationships. Ms. Freeland’s personal efforts with U.S. Senate agriculture chair Pat Roberts, a conservative Republican, helped resolve the nearly decade-long country-of-origin dispute.

Earlier this month Ms. Freeland travelled to Germany to help secure the support of the Social Democratic Party for the Canada-Europe trade agreement (CETA). She named former trade and foreign minister Pierre Pettigrew to be our political point person for CETA. The deal is on track for signature in late October, with implementation of much of the agreement in 2017.

Meanwhile, the government’s cross-Canada TPP consultations have become a public education exercise around the importance and value of trade.

In recent years, western governments have gotten out of the habit of reminding their citizens why freer trade matters to their personal livelihood and to national prosperity. Trade is now very much about the politics of inclusion. The current U.S. presidential campaign and the recent Brexit vote are reminders that governments forget this lesson at their peril.

A former diplomat, Colin Robertson is vice-president and fellow at the Canadian Global Affairs Institute.


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