Wednesday, August 24, 2005

American government shows contempt for the rule of law

I don't usually indulge myself in anti-American rants. First, I have good relations with several Americans on this blog. Second, I think Canadians and Americans share many common values; we're not as different as Canadians sometimes suppose. Third, I think Canada benefits in many ways from its close relations with the USA.

I disagree with the decision to invade Iraq, but so do lots of Americans. (Probably more than 50% now.) More generally, I don't have a very high opinion of "Dubya"; and again I'm in company with a lot of Americans on that point.

But the USA has really pissed Canadians off this week. The issue is free trade: the North American Free Trade Agreement (NAFTA).

It isn't even the sort of issue I usually care about. I am not a big business type. On the contrary, I'm all about social justice, and I tend to be pretty suspicious of multi-national conglomerates. So NAFTA is someone else's baby, not mine.

But as near as I can figure, the US government has literally stolen $5 billion from the Canadian economy over the past three years. The highest tribunal overseeing NAFTA has said as much.

I don't expect the US government to meekly apologize and return the money — I'm not such a hopeless idealist as that. But I would like the US government to obey the rule of law and stop imposing the tariffs. Instead, the US government intends to continue stealing our money.

Here are the facts, at least according to the Canadian media. From today's Globe and Mail:

U.S. Customs has collected roughly $5-billion in duties since May 2002, when American trade officials concluded Canadian softwood imports were unfairly subsidized.

NAFTA panels have three times concluded that the U.S. failed to prove that Canadian softwood poses a material threat of injury to U.S. producers.

Under trade rules, if Washington can't prove Canadian timber injures or threatens to injure U.S. producers, it is obliged to scrap the duties on Canadian lumber imports.

Canada's latest victory was on Aug. 10, when a NAFTA panel ruled that the U.S. had once again failed to adequately demonstrate injury to U.S. producers. The decision should have put an end to the dispute, but the United States said it had no intention of lifting the duties or returning the money.

In response, the federal government cancelled softwood negotiations scheduled for earlier this month with the U.S.

The men and women who negotiated the original free trade agreement are spitting mad over this. One of them described the conduct of the Americans as "an egregious, shocking, dishonourable breach of their obligations." Another said, "It's the tactic of the schoolyard bully." John Ibbitson, in Saturday's Globe and Mail, writes:

That the very architects of free trade between Canada and the United States should be speaking in such terms is, frankly, shocking.

Even more shocking is that, to a man and woman, they believe Canada should impose retaliatory tariffs, or other restrictive measures. …

There is a palpable sense of personal injury in their comments, which may come from the political irony that lies behind the American rebuke.

In 1987, the free-trade negotiations between Canada and the United States almost collapsed because the Americans refused to accept a binding dispute resolution mechanism, while Canada insisted on one. At almost literally the last possible moment, the Americans accepted the Canadian demand, on the condition that an Extraordinary Challenge Committee, as they called it, be able to review the decisions of all lower panels.

Although the Canadian negotiating team was very reluctant to accept yet another layer of appeal for trade disputes, they finally acquiesced.

It was to that Extraordinary Challenge Committee that the Americans appealed last year, when all other rulings on softwood imports went against them. It was that same committee that ruled last week in Canada's favour. That the Americans would repudiate the verdict of the very tribunal that they insisted must be part of the FTA infuriates those who negotiated the pact.

The USA's new ambassador to Canada has further infuriated Canadians by taking a completely patronizing tone with us. From another article in Saturday's Globe and Mail:

It is positively grating to hear the new U.S. ambassador to Canada, David Wilkins, patronizingly advise Canadian officials to tone down their rhetoric in response to that flouting of American treaty obligations. "The one thing that is for sure is that the more we escalate this and the more we have emotional press conferences about it, the less chance we've got to resolve it," he said in an interview this week, adding that negotiators from the two nations should simply get back to the bargaining table.

And what should they talk about? The fact that, for more than three years, the United States has slapped countervailing and anti-dumping duties on Canada's softwood exports, collecting almost $5-billion? The fact that Canada has won repeated skirmishes over softwood at both the World Trade Organization and at NAFTA dispute panels, all to no avail? …

That bad situation has been made even worse by the U.S. Byrd amendment, which effectively allows U.S. lumber firms to benefit doubly from their allegations of damage. Under that 2000 change to the U.S. Tariff Act of 1930, anti-dumping and countervailing duties are put in the kitty — and actually distributed to U.S. complainants, instead of the U.S. Treasury, when litigation is completed. So U.S. firms get to watch as their Canadian competitors are hit with duties — which makes them less competitive — with the added prospect of divvying up those huge duties among themselves.

It is a powerful incentive to keep complaining.

So I'm ranting, even though I usually don't bash Americans, and even though I usually don't give NAFTA a second thought. Am I wrong about this, or has the US government just demonstrated its contempt for the rule of law?

I am reminded of the Robert Frost line, "Good fences make good neighbors." The free trade agreement was the dismantling of a wall. And we've benefited from it in many ways, I have no doubt. But maybe I'd like this neighborhood better if the wall were still solidly in place.


At 9:16 PM, August 24, 2005, Blogger 49erDweet said...

Your facts may be spot on, and your assumptions may be correct. We may owe you (collectively) both an apology and a huge refund. The problem for me is when I Google this I only get news from the Canukistanian POV. Nothing definitive about the US administration's thinking. Literally nothing (as of about 5 days ago). The only passing US comment I found (citation gone with the wind) was a comment about, "Playing this out using all of the US's options". Whatever that means.

That doesn't sound like we're just being stubborn or rude. It sounds like a good legal principle to follow. But I could be wrong. Several weeks ago I heard in passing something about the New England softwood producers who work on their own tab, and were being financially harmed by Canadian softwood firms who are subsidized by PMPM, et al. Don’t know more than that.

It sounds like the NAFTA hearing group ruled against that claim. But is there no higher jurisdiction to hear an appeal if one side or the other feels a ruling is unjust? I don't know the answer, but am curious to find out. I totally agree with you en re: NAFTA not being my spot of tea, nor am I interested in the myriad of commercial dealings betwixt us.

And I would I put it past the group in DC to tell PMPM to "stick it in your ear" because of about 10 years worth of Liberal idiocy towards the US. One other rub might possibly be the strong international push PMPM has been making to force US troops and the administration to fall under international law, something that if it were to ever happen would violently rip this country - and possibly yours - asunder, probably even worse than that shindig in Boston harbor lo those many years ago.

I am also cross posting this under the name "General General" on my new tongue-in-cheek website at Have a look, but be gentle.


At 9:59 PM, August 24, 2005, Blogger Mary P. said...

"Ten years worth of Liberal idiocy" means it's okay to break the law? Completely flout an agreement, because you've been through all the dispute options in the agreement and don't like where it ended up? Is one of "the US's options" simply to run roughshod over smaller nations? Is the reason it's not appearing on US news media because it's just not that important in the US POV, and besides, it's not news to be in the wrong?

Just asking.

At 1:23 AM, August 25, 2005, Blogger 49erDweet said...

And, Mary P., I seemed to be asking in my response if "all the dispute options in the agreement" have truly been concluded? Your reply doesn't speak to that issue.

"Break the law", "run roughshod over smaller nations" are emotionally charged accusations that offer heat but not light. You may or may not be accurate, but IMHO you are simply emoting - not offering logical argumentation.

"Is the reason it's not appearing on US news media because it's just not that important in the US POV" could be true. I don't know. I've sure spent some time looking for it, so at least one Yank cares.

We (the US) may be in the wrong. I think I already said that earlier. It’s just that I'd like something other than the word of a biased liberal politician saying our string has run out.

What I'm hearing sounds like one side is trying to shame the other side into giving in without exercising all of its rights. That doesn't seem fair.

Prove me wrong and I'll agree with you. But use reason, please, not rhetoric.

At 2:15 AM, August 25, 2005, Blogger Jack's Shack said...

I looked around for news on this and didn't find anything either, so I am with 49er.

At 7:51 AM, August 25, 2005, Blogger Stephen (aka Q) said...

49er (and Jack):

First, I must acknowledge that I, too, am depending on information from the Canadian media. I'm always interested in knowing the other side of an argument, and I have no direct information about the American point of view. (Nor were you able to supply me with any.)

49er writes:
Several weeks ago I heard in passing something about the New England softwood producers who work on their own tab, and were being financially harmed by Canadian softwood firms who are subsidized by PMPM, et al.

This is correct; i.e. this is what American softwood producers are claiming. But NAFTA panels have three times concluded that the U.S. failed to prove that Canadian softwood poses a material threat of injury to U.S. producers.

I agree with you, Playing this out using all of the US's options is a good legal principle. The problem is, the USA has already explored all of its legal options — and lost. And they intend to keep doing what they have been doing despite the rulings of NAFTA, the WTO, and now the Extraordinary Challenge Committee.

As I understand it, the American position is entirely political rather than legal. American softwood producers don't like Canadian competition. They lobby their Senators. The Senators engage in a little horse trading with other Senators. ("I'll support you on that initiative, that's so important to your state, if you'll support me on softwood lumber.") The law and the tribunal rulings simply do not enter into their purely political calculations.

Second, the only justification that has been reported (to my knowledge) says, in effect, "We have new information since we made our case before the Extraordinary Challenge Committee."

Color me sceptical. The US government has had plenty of opportunity to gather information and make its case, through successive appeals of the original decision. It is a pretext for refusing to comply with a ruling merely because it is contrary to US interests. Nothing more.

Finally, the silence of the American media on this issue is not an argument against the reports I have provided from the Canadian media. The issue isn't on the American radar screen, that's true. But I'm not ultimately relying on the Globe and Mail's reports. I am relying on the decisions of the various tribunals who have, without exception, ruled against the USA.

Find me a tribunal that ruled in your favour and you'll have yourself an argument. Otherwise, I stand by my accusation: the US government is showing contempt for the rule of law.

At 8:08 AM, August 25, 2005, Blogger Mary P. said...

49er: I concede that some of my phrases were emotive. Let me further express my appreciation for the consistently rational and measured tones of your comments. None of this, however, negates the validity of my questions. It's not a "biased liberal politician" who is saying your string has rung out: it's the NAFTA tribunals. I'm with Q: find a tribunal in this long legal process that found for the American position, and you'll have a valid argument.

At 10:11 AM, August 25, 2005, Blogger 49erDweet said...

We are huge elephants, aren't we? Mea Culpa if we are truly behaving as oafs.

In the meantime I will be seeking some off-channel assistance with the details on the US POV of this case, and will return (potentially) next week with what I've learned. It will be on

Thanks for the discourse, and intense dialog.

At 10:12 AM, August 25, 2005, Blogger Stephen (aka Q) said...

Re American sources:

(a) Wall Street Journal
Canadian politicians are making much of an editorial in the Wall Street Journal, which is quoted in the first Globe and Mail article sited in my post:

An editorial in the Wall Street Journal last week took on the issue, arguing that the U.S.'s failure to drop the tariffs was negatively impacting construction costs.

"The trade panel's pro-consumer ruling allows the Administration a graceful exit from one of its more bone-headed economic policy decisions: the imposition of the lumber tariffs in 2002," the editorial stated. "Its cave-in to the domestic timber industry — combined with the imposition of steel tariffs at about the same time — damaged U.S. trade credibility around the world."

The editorial went on to say that, "if there were ever a time for Canada to raise its voice forcefully, it is now."

(b) Wall Street Journal again
Here's a blogger who quotes an earlier Wall Street Journal editorial as follows:

Canada took the matter to arbitration at a Nafta panel — consisting of three Americans and two Canadians — and won. Now the U.S. has made an "extraordinary challenge" to a special Nafta committee to investigate the ruling. Meanwhile, over in the World Trade Organization the U.S. is employing similar tactics to drag out litigation.

It's unlikely that the U.S. will prevail, but that no longer appears to be the goal. Rather, the petitioners have their eye on almost $4 billion in duties — a number that climbs by $80 million monthly — that have piled up in Customs' coffers. One would reasonably expect that if the U.S. loses the dispute, the Canadian exporters that have paid those duties ought to get them back.

But here's the amazing part: Grant Aldonas, Undersecretary of Commerce for International Trade, has told Canada that his reading of Nafta precludes the U.S. from returning the money. Instead, he wants a negotiated settlement that lets U.S. lumber companies keep part of the nine-digit buildup, even though the duties have been ruled unlawful.

(c) Brink Lindsey
This American source argues against the duties:

We calculate that trade restrictions add an estimated $50 to $80 per thousand board feet to the price of lumber, which drives up costs and shrinks profits for lumber users. The resulting addition of $800 to $1,300 to the cost of a new home prices some 300,000 families out of the housing market, denying them the dream of home ownership.

Mr. Lindsey was writing five years ago; presumably the dollar figure would have to be adjusted upward to make it current.

However, he isn't arguing about the legal merits of the American's case; he's just saying duties are a bad deal for American consumers.

And that's the thing about free trade. It ultimately benefits consumers. Inevitably, it hurts local economic interests. Some businesses lose from a free trade agreement, while others gain. But consumers ultimately win.

The US government negotiated this free trade agreement, and they insisted on the creation of the Extraordinary Challenge Committee. But they only want free trade when it works out in their favour. When it is contrary to American interests, to hell with it.

Obviously free trade can't work that way. Both countries have to take the good with the bad, reasoning that the overall package is beneficial. If Americans can't accept it on those terms, we shouldn't have negotiated the agreement.

At 10:53 AM, August 25, 2005, Blogger John the Mad said...

This has been going on since 1982 when the US slapped an import tax on Canadian softwood lumber. Since then the US has lost every adjudication both under Chapter 11 of the NAFTA (there are a number of decisions) and under the WTO (Subsidy (CVD) Determination Challenge [WT/DS257]: Jan 2004); (Dumping Determination Challenge:[WT/DS264]Apr 2004); (Threat of Injury Determination Challenge [WT/DS277]:

The Aug 11, 2005 Extraordinary Challenge Committee decision that ruled on the case is the final step in the appeal process under NAFTA.

When is a trade agreement not a trade agreement? When the US government unilaterally and arbitrarily decides to ignore its obligations.

At 1:44 PM, August 25, 2005, Blogger Stephen (aka Q) said...

Thanks for providing more detail, John. And some moral support for my position, too.


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