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 current situation.

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 since.

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 WTO.

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 not win.

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 dearly.

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 306-652-7095 davidorchard@sasktel.net

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