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Free Trade, American Style

In a ruling on July 17, a NAFTA panel upheld American anti-dumping duties on Canadian softwood lumber but found that the calculations used by the U.S. Department of Commerce (DOC) to determine the 8.4 percent duty were flawed. The panel gave the DOC 60 days to correct the calculation. Industry analysts are projecting the duty will be decreased by as much as half.

While the Canadian government tried to claim the decision represented a victory for the softwood lumber industry, it seems a fairly hollow one. When the Americans imposed the duty on softwood lumber in May 2002, the impact on the Canadian economy was instant and severe, with tens of thousands of jobs lost in the lumber industry.

In challenging the anti-dumping duty, the Canadian government made five main arguments to the NAFTA panel and was successful on two of these. The panel agreed that the DOC calculations were flawed and ordered them to be revised. The panel also found that, as part of their complaint on dumping, the Americans could not, in essence, compare apples to oranges by looking at the pricing of one lumber product in the Canadian market and comparing it to a different product in the U.S. market.

However, in three other areas, the panel ruled that the American tactics were consistent with U.S. trade rules. These tactics are varied but include practices that are not allowed under international trading agreements. U.S. trade law, however, has been amended several times since both the FTA and NAFTA went into effect, in order to stack the deck in favour of American trade challenges.

The panel found, for example, that under American trade law, it is acceptable to select only six companies, examine their pricing practices on lumber and use that as the basis of a complaint against the entire industry. (The Americans have used a similar tactic in their effort to make a dumping charge stick on Canadian spring wheat. The DOC chose to look at the costs of production of less than 30 farmers and use their costs as representative of 55,000 western Canadian grain farmers). This practice, while legal under U.S. trade law, is statistically invalid and tends to favour the complainant.

One lumber industry representative from British Columbia reacted to the panel decision with resigned frustration. "Unfortunately, with these trade laws, it seems you're guilty until proven innocent," he told the media.

That has certainly been the experience for both the Canadians and the Mexicans under NAFTA. The U.S. is currently involved in dozens of trade challenges against each country. Products from Canada which are under attack include tomatoes, steel, magnesium, live cattle and wheat. In Mexico, cement, steel, oil, and trucking services are being targetted. In each of these cases, preliminary tariffs have been imposed based on very weak evidence - guilty until proven otherwise. The problem with NAFTA is greater than reverse-onus trade laws, though.

While leaders in both Canada and Mexico promised increased access to American markets as a way to sell NAFTA to their populations, access has come at a high cost. The Americans have consistently challenged differences in the economic policies of their NAFTA partners by challenging imports of products. Canadian wheat, for example, is marketed by a farmer-controlled monopoly, to the great frustration of American grain multinationals. Stumpage fees on provincial lands for logging are challenged as unfair subsidies because the American system has no equivalent to Crown lands. Oil from Mexico has to be kept out because of the role of the state in its production.

In other words, these challenges are not only about goods and services. They are about taking away the sovereign rights of the governments of Mexico and Canada to set economic policies when these policies interfere or could potentially interfere with the ability of American multinationals to maximize their profits. This is free trade, American style.