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Tariffs and Subsidies
Protectionism and not-so free trade

The United States in general, and the governing Republican administration in particular, are widely regarded as staunch free traders. But their recent track record does not reflect this reputation.

Historically, protectionist policies are a reaction to economic stagnation, since governments want to ensure the survival of key industries (and voters) during a slow economy or recession. The current US administration has responded to America’s economic woes with huge tariffs on steel imports and increases to its own farming subsidies. A number of trade conflicts are being waged with Europe and some African states taking aim at the United States; and there is no shortage of conflict within North America. The World Trade Organization (WTO) adjudicates most of the international contests, while North American states also look to the NAFTA Secretariat to resolve their disputes.

Softwood Lumber Dispute

One of the longest running issues between USA and Canada is softwood lumber. The US imposed a 27% duty on Canadian softwood in May of 2001 after the previous agreement expired. US producers claim that Canada unfairly subsidizes its forest industry by charging low fees for the wood (known as ‘stumpage fees). The US tariffs are resulting in mill closures and thousands of job losses, especially in British Columbia.

There have been several rounds of negotiations attempting to resolve this dispute. In February 2003, talks broke down over a proposed temporary export tax and the matter of the US returning over $1 billion in duties collected from Canadian companies.

Several WTO panels have overruled the US complaints, but the appeal process is long enough to cripple Canada’s forest industry in the meantime. The latest US proposal was termed a “no go” by Canada’s Trade Minister, Pierre Pettigrew, on May 16th 2003. The WTO will hand down its ruling vis-à-vis this dispute on May 27th 2003 (what was the result of this situation?), while a NAFTA panel will also submit its opinion in mid-July.

For more on the softwood lumber dispute, read Mapleleafweb.com’s softwood spotlight.

Agriculture Disputes

Traditionally, agricultural and farming industries have been the most subsidized and protected segments of national economies. Indeed, both the United States and Canada heavily subsidize their agricultural producers, including dairy and grain producers.

Wheat is a sensitive issue between the two countries. In March 2003, the World Trade Organization announced it would appoint a panel of experts to examine U.S. claims that Canada illegally subsidizes wheat exports.

Early in 2003, the US Commerce Department imposed a 4% tariff on Canadian wheat; in May, an additional 6% tariff on wheat, and an 8% tariff on durum were imposed.

The Canadian Wheat Board (CWB) markets all Canadian grain internationally. They argue that there are no subsidies and point to 10 previous arbitrations – ruling in Canada’s favour – to back their claims. Canada sold more than $400 million of wheat and durum in the US last year.

September 11th, Security, and Border Control

In response to the September 11th 2001 terrorist attacks, the US government has ‘beefed up’ its border controls. Increasingly, Canada is seen as a plausible point of entry for terrorist organizations, given what is perceived as less stringent immigration control north of the 49th (read Mapleleafweb.com’s feature Terrorism and Canadian Mobility for more info).

But sacrificing trade-related productivity for border security is a serious concern for business interests on both sides of the border. William Dymond and Michael Hart, the authors of a recent CD Howe Institute report, and faculty members at Carleton University’s Centre for Trade Policy and Law argue…

The first and only priority for Canadian diplomacy over the next few years is to reach a new accommodation with the United States because it is only when that relationship is comprehensible, predictable and sound that the country can again assume a meaningful world role.

A synopsis of their report is available online.

Trade Unions, Unemployment, and Opposition to NAFTA

If NAFTA is simply meant to eliminate North American trade barriers, a quick look at the document itself is a reminder that it is not that simple. It is difficult to argue against such a constructive concept as free trade, but at over 1,000 pages, NAFTA is not merely a ‘free trade’ framework.

The Executive Director of Harvard’s Trade Union Program states that NAFTA is not a free trade agreement at all, “but rather a combination of new corporate protections, tariff reductions and new complex trade re-regulation.”

Unions are among the staunchest opponents of NAFTA. They argue that corporations can move their capital (e.g. factories, production centres, etc.) more easily under the agreement, in order to avoid paying decent wages, and to ignore the hard-won workplace regulations and standards in advanced, industrialized economies. Throughout the 1990s, union groups and other NAFTA opponents also argued that rampant unemployment would follow in the wake of NAFTA. But, while instability reigns in several sectors of the job market, overall employment rates have not been adversely affected by NAFTA.

Read the Harvard TUP Executive Director’s entire critique online [PDF]

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