CANADA’S DEPENDENCE ON U.S. MARKET
CANADIAN POLITICAL SOVEREIGNTY
Canada’s sovereignty and its dependence on US markets
One of the important trade disputes between the US and the Canadian government is the softwood lumber trade. The dispute started when US logging companies lodged complaints against Canada on subsidized stumpage rates. As the trade progressed the controversies also increased. We analyze Canada’s dependence on US market and the political sovereignty of the Canada.
We also look at the consequences Canada might face in the near future if it disagrees with the US. The two sides arguments is also reviewed. We also review the impacts of the US trade restrictions. Since it is one of the longest trade disputes both governments know the issues to be discussed clearly. CANADA’S DEPENDENCE ON US MARKET
The dispute started in the year 1982 when some of the US logging companies lodged complaint against Canadian industries on subsidization of Canadian stumpage rates on the import of softwood lumber from Canada. Department of Commerce (DOC) investigated the case.
For convenience the four lumber litigations are listed as follows:
Lumber I <1993>
The DOC issued a decision that stumpage rate was not a subsidy.
Lumber II <1986>
DOC issued a decision that provincial stumpage was a subsidy, but a Canada-US MOU silenced the issue under which Canada imposed a 15% tax on exports to US (Howard, 2000).
Lumber III <1992>
The DOC found provincial stumpage and log restraints were subsidies. Chapter 19 panel reversed the decision. The panel decision was upheld by ECC (Extraordinary Challenging Committee).
The DOC found Canadian stumpage rates were subsidized and softwood lumber was being dumped in US. The decisions are now pending on Chapter 19 panels and WTO.
Till now Canada has filed seven appeals against the duties imposed on softwood lumber, three before NAFTA (North American Free Trade Agreement) and four before WTO (World Trade Organization).
According to the General Agreement on Trade and Tariffs (GATT) and WTO, governments have in general agreed to lower trade restrictions against each other. But there are number of exceptions in WTO which allow trade restrictions to continue including:
Anti-dumping duties to offset countries/companies selling unfairly at a low
Countervailing duties to offset government subsidies
Emergency trade restrictions designed to “safeguard” domestic industries.
In May 1992 DOC ruled that both Canadian stumpages and log export restraints (LER) in British Columbia represented countervailable subsidies and set the countervailing duty (CVD) at 6.51% i.e., 2.91% for stumpage and 3.6% for LER (Hoberg, Howe, p.4).
In September 1993 DOC ruled again that both stumpage rates and LER conferred subsidies and increased CVD to 11.54% based on adjustments on certain technical calculations.
Both the governments signed the Softwood Lumber Agreement (SLA) that came into effect from April 1, 1996 to March 31, 2001 (Ragosta and Clark, 2000). According to this agreement an export fee of $50 per thousand board feet (MBF) on softwood lumber exports in excess of 14.7 billion board feet (BBF), $100/MBF on exports in excess of 15.35 BBF (Howard, 2000). It seemed all right with the settlement but behind the scene both the governments were not satisfied.
After the expiration of SLA Bush government imposed 12.58% anti-dumping duty (ADD) in October 2001 (Ying, Baek, 2002). Canadian government decided to take the legal and political battle with the US.
The US side is represented by Coalition for Fair Canadian Lumber Imports (CFCLI). In Canada two associations, British Columbia Lumber Trade Council (BCLTC) and Free Trade Lumber Council (FTLC) decided to fight the legal battle with the US.
CANADIAN POLITICAL SOVEREIGNTY
Political sovereignty means protecting the country’s political and diplomatic rights by taking appropriate decisions inthe country’s best interests.
The softwood lumber dispute between Canada and the US is a test to the Canadian sovereignty. From decades Canadian industries were dependent on the US market. Most of the Canada’s products were exported to the US markets. The US also depends on Canada for oil and natural gas.
Canadian industries were very much dependent on the US markets in case of export of softwood lumber. This reliance on US markets of Canadian industries is becoming a biggest threat to Canadian sovereignty.
The reason for the above condition is Canada is heavily dependent on US. Thus Canada is becoming vulnerable to trade actions taken by the US industry. Due to this dependency US made the laws that will result in their favor.
Canadian sovereignty has been not challenged because of the transfer of authority to supranational institutions, but precisely because supranational institutions were not strong enough (Hoberg, Howe, p.17).
Both countries had their own opinions and arguments on the disputed issue. Canada’s point of view is that improper duties and ADD on its exports especially in case of softwood lumber is not justifiable. Since this issue is becoming a challenge to their sovereignty Canada is willing to fight the legal battle with the US.
The softwood lumber dispute has been brought in front of international tribunals like NAFTA and WTO where the case is still pending. The final outcome of this case is eagerly awaited.
Fred McMahon. (2005). The Problem With Sovereignty. Fraser Forum
Special Edition (March). Vancouver: The Fraser Institute.
George Hoberg, Paul Howe. (1999). Law, Knowledge, and National
Interests in Trade Disputes: The Softwood Lumber Case. : University of