Toronto Star, Tuesday, August 23, 2005
A simple solution to U.S. bullying
Canada can pull out of free trade agreements and return to WTO without penalty,
say Mel Clark and David Orchard
In the flurry of outrage over the U.S. refusal to
comply with the latest NAFTA ruling on lumber, something
is missing. Editorials abound, former negotiators and
promoters of NAFTA are talking tough, calling the
Americans names. Others suggest ill-conceived threats or
demand that the Prime Minister "talk" to President
George W. Bush.
Nowhere in these responses is there a concrete plan
of how Canada should respond.
Lost in the cacophony of bluster is the fact that
Canada is already part of a coherent rules-based trade
agreement with the United States. It is called the World
Trade Organization, formerly the General Agreement on
Tariffs and Trade and it has the mechanisms already in
place to enable Canada to emerge a clear winner from the
Founded in the late 1940s, the GATT/WTO was for
almost 40 years the primary trade contract between
Canada and the U.S.
In all of that time, the United States was never able
to levy a countervailing or anti-dumping duty on our
exports of lumber. During those four decades, Canada
traded profitably, our standard of living rose, Canada
won almost all its trade disputes with the U.S. -- and
Washington abided by the rulings.
By the mid-1980s, 90 per cent of Canadian lumber
entered the U.S. tariff free and the duties on the
remaining 10 per cent were negligible.
It was only when Canada decided to turn away from the
multilateral framework of trade rules with the U.S. and
enter into a bilateral one-on-one "free trade" agreement
with the U.S. in the mid-1980s, that U.S. industry saw
its opportunity and used it. It has been using it ever
Under the FTA and NAFTA, it is U.S. law which now
applies to all of Canada's exports in countervailing,
anti-dumping and related disputes with America. The
dispute panels are limited to deciding if the U.S. has
applied its own law correctly.
Furthermore, the U.S. can at any time amend its trade
law without Canada's agreement and, on lumber alone, it
has done so three times to Canada's great disadvantage.
In other words, the FTA and NAFTA, instead of giving
us more secure U.S. market access, unleashed the full
force of U.S. protectionism to be used against Canada in
a way that was not possible under GATT/WTO.
As for the dispute settlement mechanism, touted
repeatedly as "the crown jewel" of the FTA, it bears
repeating that all agreements end when the negotiated
means of resolution are discarded by either player.
The answer is not to shake our fists or shout
meaningless threats at America. The answer is to simply
return to the safer, more effective, already existing
multilateral WTO framework of which Canada and the U.S.
are both still members.
Under the WTO, we have all the levers to get back the
$5 billion the U.S. has taken in lumber tariffs and to
make sure it doesn't happen again.
When Washington not long ago threatened hefty steel
duties against Europe, Japan and a number of other steel
exporters, Europe triggered the WTO retaliatory process
and the Bush administration backed down.
The same defences are available to Canada under the
Since signing the FTA and NAFTA, the United States
has taken 10 trade actions against the Canadian Wheat
Board, Canada's largest net earner of foreign currency,
and we now have U.S. tariffs against our wheat exports.
In all the years of trading with the U.S. under GATT,
the Americans never launched a single formal action
against the wheat board, because they knew they could
The essence of the FTA and NAFTA is that they cede
vital government powers to the U.S. and the private
sector that were used to build an independent Canada.
What the U.S. wants out of the repeated challenges
against Canadian lumber exports is to wear Canada down
until it agrees to privatize its crown-owned forests,
opening them to direct U.S. ownership.
In grain, Washington wants an end to the wheat board.
This would see the Canadian grain trade move virtually
overnight into U.S. hands.
There is a simple way out, without bluster or
insults. Canada does not have to give up ownership of
its forests, its industries and its institutions.
With a simple letter to the U.S., under FTA Article
2106, NAFTA Article 2205, Canada can, with six months
notice, withdraw from these agreements without penalty
and without conditions.
Our trading relations with the U.S. will then
automatically revert back to the GATT/WTO framework of
international law, which will enable us to both maintain
our institutions and trade profitably with the U.S.
All of the intolerable NAFTA rights U.S. companies
now have over Canada — to sue the Canadian government,
to overturn Canadian laws, to control our exports and
energy prices — would disappear. Canada would regain its
status as a sovereign nation.
Chasing the dream of a "special relationship" and
some kind of shortcut to "secure access" to the U.S.
market is a dangerous delusion which has cost Canada
Superpowers do not have friends or "special
relationships," they have interests and they pursue
them. Canada must learn to do the same.
Mel G. Clark is a senior international trade
negotiator. He was deputy chief negotiator for Canada at
the Tokyo Round of GATT and Canada's chief negotiator
for the International Grains Agreement. Retired and
living in Ottawa, he is currently writing a book on
NAFTA's impact on Canada.
David Orchard is the author of The Fight for Canada
-- Four Centuries of Resistance to American
Expansionism, and ran for the leadership of the federal
Progressive Conservative party in 1998 and 2003. He
farms at Borden, SK and can be reached at tel