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Will Canada escape the brunt of the Trump trade attack?

Too good to be true? – probably so.  Canadian Press survey suggests opening NAFTA is a Pandora’s Box…

NAFTA: Trump’s ‘tweak’ talk just empty talk? That’s what trade experts say

National Newswatch
By Alexander Panetta – The Canadian Press
February 16, 2017

WASHINGTON — U.S. President Donald Trump gave reassuring words to Canada this week when he lauded an outstanding trading relationship and suggested that changes to the North American Free Trade Agreement would involve just minor “tweaking.”

Invited by The Canadian Press to analyze the president’s promise, a trio of trade experts agreed: that’s not a promise the president can make.

Presidents don’t singlehandedly control U.S. trade negotiations, they say — the process involves numerous actors, all of whom will push their own priorities.

The end result is a Pandora’s box: Either Trump keeps it closed, tinkering superficially with NAFTA through regulatory changes, or he opens it — and all sorts of issues start spilling out.

Here are their views on why Trump’s tweak talk could prove to be empty talk. ….

Peter Clark, trade strategist involved in Canada-U.S. Free Trade and NAFTA negotiations

‘‘He really doesn’t have a clue. Trade is all about detail — and (Trump) doesn’t strike me as being a details person…. He’s addressed it in a broad-brush approach, (like), ‘We want to make it easier to export.’ He also wants to make it more difficult to import. So I’m not sure the tweaking is necessarily going to help us. I don’t see the tweaking helping our dairy farmers and poultry farmers. I don’t see the tweaking helping our grape and wine industries. These are standard targets — they’re always after anything we happen to do differently, which has to, of course, be unfair, depriving Americans of their God-given right to dominate our market. He hasn’t got anybody at USTR (yet) — he hasn’t got Bob Lighthizer there, and Bob hasn’t nominated his four deputies that also have to be confirmed. Without those guys you can’t really do much…. Their normal practice is to ask stakeholders to indicate what they’d like them to do. There will be a lot of things on that list…. You can never count out Congress…. (Trump) can’t control what stakeholders want. Congress controls what stakeholders want (in the deal) because…. they always seem to be in election mode… You get hit by surprises. (New issues) get traction. I can’t anticipate what the problems are going to be, but there’s going to be problems…. That’s a Pandora’s box — once you open it, everything’s open. How can you say, ‘We want to reopen NAFTA for you, you and you — and all you other guys, go play in the traffic?’ You can’t do that.’’

Click here for the complete article.

What happens next with Trump and trade

Trying to assess the future effects of Trumpian trade policy is becoming a full time focus of our practice.

It is prudent to do on the ground research and outreach.

What happens next with Trump and trade

iPolitics Insights

Peter Clark

Thursday, January 26th, 2017

President Donald Trump continues to peel back the Obama legacy like an onion. With the stroke of a pen he unblocked TransCanada’s Keystone XL pipeline project and will try to expedite the completion of the Dakota Access pipeline. If it gets past the protests and litigation, Keystone will have important benefits for the United States — and for Canada.

Prime Minister Justin Trudeau celebrated the decision for the benefits it’s expected to bring to struggling Alberta. The Buy American requirement for steel will not be welcomed by Premier Brad Wall, though; Saskatchewan has introduced important tax concessions to expand the Evraz large diameter pipe mill at Regina.

During the Republican primaries and the election campaign, Trump said he (or the U.S.) would want a piece of the Keystone action; now he wants to re-negotiate the deal. That Buy American rules will apply to steel for pipelines is not a surprise. Trump is trying to make the Keystone approval a gift that keeps on giving, but not for Canada. (Will Canadian line pipe stockpiled in the U.S. have to come home now?)

Trump and Trudeau will not be conducting day-to-day negotiations; at least, history suggests they won’t. President Trump has been very hands-on so far and may fancy himself as Closer-in-Chief. To him, strategy appears to be at least as important, if not more important, than ideology. The business of running the largest economy in the world is very time-consuming, and these are early days. It’s important to understand who is behind the development and delivery of administration trade policy.

As Secretary of Commerce, Wilbur Ross will be the guiding force for the implementation of trade enforcement and for bringing jobs home. Mr. Ross made his fortune buying steel, auto parts and textile assets out of bankruptcy, restructuring and selling them. His confirmation hearing before the Senate resembled a love-in. He is very capable and comfortable being in charge. Mr. Ross is the steel fist in a velvet glove — a seasoned gunslinger who will not accept failure.

The Department of Commerce is responsible for anti-dumping and countervailing duty investigations and enforcement. Trading partners should be wary of his willingness to self-initiate trade remedy anti-dumping and countervailing duty investigations. The usual detailed complaints — with evidence of dumping, or subsidies and injury — will be waived on his watch. This will help small businesses get faster relief with minimal upfront costs — and signal to the bad actors that the U.S. means business. Don’t expect these self-initiations to be limited to helping small or fragmented industries.

Robert Lighthizer will be the United States Trade Representative — if his work decades ago for foreign governments does not disqualify him first. Lighthizer, a former deputy USTR in the Reagan administration, is a veteran of the U.S. steel wars and other high-level trade battles. He is smooth but tough. He will be the chief negotiator and — more important to the Trump Administration — the Enforcer-in-Chief in a trade policy regime focused on enforcement.

Lighthizer knows all of the levers available to the USTR — how to use them, how to bend them and, if need be, how to invent new ones. He has been a harsh critic of WTO dispute settlement for going beyond strict interpretation of the agreements and thus creating new obligations. (While the WTO Appellate Body has generally performed well, I share his concerns.)

Current USTR General Counsel Tim Reif will be staying on as a special advisor to Lighthizer. Mr. Reif is a Democrat and former Hill staffer respected on both sides of the aisle. Lighthizer knows and trusts him. The Trump agenda will be more attractive to some Democrats than to most Republicans. Mr. Reif, who is close to Rep. Sander Levin (D-MI), is a valuable link to that support.

China will be the principal target for enforcement trade challenges (at the WTO) and trade remedy actions, but not the only one. There will be other challenges as the USTR and the administration work to clean up or reduce outstanding irritants in its extensive Foreign Non-Tariff Measures inventory. While Canada is not in the crosshairs yet (isn’t NAFTA enough?) we will not escape the enforcement squad.

Finally, University of California economics professor Peter Navarro will head up the National Trade Council in the White House. He is an extreme China-phobe whose public criticisms of Beijing have reportedly influenced President Trump’s thinking.

The act of bringing Navarro into the White House has shocked China and perhaps a few other U.S. trading partners. This helps to soften up the opposition and might lead to acceptance of less-extreme-than-advertised solutions.

Navarro’s extreme views are illustrated in his documentary, “Death By China: How America Lost Its Manufacturing Base”. (I watched it — can’t recommend the experience. Cruel and inhuman punishment.)

The Trump administration will enforce (and likely expand) U.S. rights through jawboning and immoral suasion, trade remedy investigations or WTO dispute settlement. Washington has been working to put its stamp on the Appellate Body, vetting its own nominees and blocking re-appointment of those who march to their own drummer.

The extreme, exhaustive U.S. style of litigating trade disputes does not facilitate prompt relief. In the case of Country of Origin Labelling — which cost Canadian livestock producers billions in lost exports — it took six years to litigate before two panels, two trips to the Appellate Body and the unprecedented publication of a possible retaliation list. This practice of exhausting all remedies is not likely to change under a president who is proud of never settling — unless he has to.

The likely Canadian targets of U.S. enforcers could range across many sectors. I touched on the perennial softwood lumber dispute, border tax adjustments and NAFTA Chapter 19 dispute settlement in a previous column. These are the big issues.

NAFTA re-negotiations will focus on Trans Pacific Partnership concessions of interest to the U.S. This will be a starting point, not the end game. I have written extensively on the TPP — widely hated by civil society and anti-corporate activists — as a good ground-breaking agreement. And while Trump has kept his promise to withdraw from the TPP, U.S. negotiators will use it a starting point for re-negotiating NAFTA.

We should expect that the NAFTA 2.0 template will become a model for other negotiations. It will avoid repetition and, if the partners are willing, lead to speedier agreements. This makes sense: Much of the text is boilerplate and the negotiations are about exclusions. In TPP, most of the asks originated with the United States — others wanted access to the U.S. market — while for Canada the real prize would be access to Japan and a bridge to Asia.

The USTR shopping list will include a number of specific Canadian targets.

Challenging provincial Liquor Board practices favouring local producers and increased access for dairy and poultry products are always near the top of the U.S. shopping list. The latest challenge — of excluding imported wine from B.C. grocery stores — was launched in the dying days of the Obama Administration.

In Washington, consistency is the bugbear of small minds. USTR and Congress will ignore the extensive U.S. preferences for small breweries and wineries and pass them off as tourism promotion. And the “deep pockets” support for U.S. farmers and ranchers is protected by rules which exempt from WTO discipline the most egregious practices by labelling the support “green” or non-actionable.

Canadians are always concerned about possible demands to divert our water to shore up U.S. irrigation systems. Refusal to divert lakes and rivers to the U.S. would fall outside WTO prohibitions on export controls. Controls on bulk water exports could be an “iffy” situation. Given that about 45 per cent of U.S. agricultural production is from the 17 states most dependent on subsidized irrigation, and water tables under these states are declining – we should not assume that this won’t become an issue.

Other items on the shopping list will likely include:

– Eliminating restrictions on grading U.S. wheat and barley exported to Canada.

– A Personal Duty Exemption for returning residents who have been out of Canada for less than 24 hours. Currently there is none – but CBSA officers at the land border tend to be flexible about small purchases, particularly those which are not subject to GST/HST. The United States considers that the $800 limit for longer stays should apply to all absences from Canada. This would be great for Canadians living close to the border and U.S. retailers. It likely would be a nightmare for Canadian retailers already trying to cope with burgeoning e-commerce alternatives.

– Increasing the duty/HST exempt limit for courier packages from $20 to $200. Amazon.com, FedEx and U.S. e-commerce merchants have been lobbying hard for this. Increasing the exemption would be an important revenue drain for Canada — and more problems for Canadian retailers (and manufacturers). U.S. efforts to sell this approach in the TPP negotiations did not gain much traction. In a bilateral negotiation the pressures will be more difficult to resist.

– Support for the aerospace industry is on USTR’s list. Brazil has already raised concerns about subsidies to Bombardier. Expect Washington to join in. The C-Series competes with smaller Boeing aircraft. General Electric has also expressed concerns about support to Pratt & Whitney for its successful new engine.

– Notwithstanding Canada’s frustration with U.S. state-level Buy American requirements, Hydro Quebec local-content procurement requirements have raised a red flag in Washington.

– Should the consolidation of federal government technology systems under a single platform be handled by U.S.-based “cloud” computing suppliers? Canada says no for national security reasons.

This is not an exhaustive list. When the re-negotiation process begins there will be no shortage of U.S. stakeholders with new issues. This is a glimpse of the continuing reality in the largest and most balanced bilateral trading relationship in the world.

Some of these issues may seem relatively small, but they are important to affected Canadian stakeholders. The cumulative effects can be serious. It does not matter if you are guillotined or nibbled to death by ducks; the end result is the same.

NAFTA 2.0: Buy American, Hire American

This column is about the pillars of President Donald Trump’s Trade Policy.

America First is not a new concept. U.S. negotiators always put America first. We can hope for the best, but prepare for the worst.

NAFTA 2.0: Buy American, Hire American

Canada not likely a first target in Trump’s war on NAFTA, but changes are coming

iPolitics.ca – Opinions
By Peter Clark
January 23, 2017

Prime Minister Trudeau appears to have done as much as possible to avoid direct hits from the Trump trade howitzers.

Former Prime Minister Brian Mulroney and Canada’s Ambassador to Washington David McNaughton are savvy interlocutors who can help steer Canada through the inevitable rough patches. Still, even the most optimistic observers agree there are potential problems.

The Cabinet retreat in Calgary is being briefed by senior advisors to President Donald Trump, including Blackstone Group CEO Steve Schwarzman, an opportunity engineered by Mr. Mulroney who is on the Blackstone Board.

The Prime Minister’s Office and the Canadian Embassy explain that Canada is not in the crosshairs, at least for now. Clearly, Canada is an important customer for U.S. and this should matter. I hope that repetition of that fact does not wear thin.

There has been no Executive Order on NAFTA yet. U.S. stakeholders will target Canadian practices and interests – and the administration will have no choice – it will pursue the complaints. We must hope for the best and prepare for periodic turbulence.

While softwood lumber may not be fully a NAFTA issue, tends to dominate the trading relationship, and it drains resources badly needed to address other issues.

There will be battles between Congress and the White House over details of the trade program. Trade agreements are all about detail. And Congress will do its best to block what it opposes – like prohibitive taxes on trading partners and outsourcing American companies who fail to be persuaded by the President’s jawboning.

Trump Cabinet nominees Wilbur Ross (Commerce) and Steven Mnuchin (Treasury) have signalled that the President finds the border tax promoted by House Speaker Paul Ryan confusing and that he does not support it. But I have learned over the years to never say never about Congressional initiatives.

President Trump, the communicator, wants a clear signal to his base – a very visible one – which will likely be used to only deal with special evils and recalcitrants (read China). It will not simply fall from the sky overnight. Such action will likely flow from failed negotiations.

The GOP tax mavens could introduce a Value Added Tax (VAT) similar to Canada’s HST. But VAT is a four letter word to the GOP. Visible taxes are never popular.

The Trans-Pacific Partnership (TPP) is dead. I agree with those in Congress who think this is a mistake. Evidence of real benefits to the U.S. in TPP is demonstrated by its objective to include the best bits of TPP in NAFTA.2 or in agreements with other TPP participants.

More than five years of detailed negotiations have been thrown out with the bathwater. Why? For a sound bite? – or to deny President Obama an important part of his legacy? But perception in “Fly Over America” is reality – so TPP had to go.

In theory, the NAFTA re-negotiation will be comprehensive. Don’t expect the process to be a give and take negotiation. It will be much more “take” – a rebalancing in favour of the U.S. Washington wants to sell Canada and Mexico the same fish twice.

The new bilateral negotiating thrust will not benefit Canada. Washington has the market and leverage to dominate negotiations with individual trading partners, Canada does not. We need a broader rules-based trading system to protect and advance our trading interests.

Don’t expect to secure concessions which are contrary to America First, Buy American and Hire American. Improved access to Buy American procurement rules may be easier in a bilateral deal than in TPP, but far from a slam dunk or no brainer.

Without the TPP, Canada will need to reach a bilateral agreement with Japan. That is not likely to happen until Japan is finished with the U.S. This means that Japan’s market access cupboard could be bare – or not very attractive – for Canadian beef and pork exporters. Japan has rejected a possible TPP-lite agreement.

Allowing Japan and the U.S. to negotiate automotive trade and rules of origin on their own should be worrisome to Canada’s auto parts producers and assemblers. Looser origin rules, allowing Japanese assemblers more Chinese and Thai content were the basis for Japanese acceptance of TPP and its implementation bill. Is change possible?

Watch for more Japanese investment in U.S. automotive assembly to sweeten the pot. And U.S.-specific access for agriculture will increase support from U.S. farmers and ranchers. Canada does not need a repeat of its experience with Korea.

Another important, big give – more likely a take – will be the death of special NAFTA Chapter 19 dispute settlement for anti-dumping and countervailing duty investigations.

Canada-U.S. FTA bilateral dispute settlement which morphed into Chapter 19 in NAFTA, is a major part of P.M. Mulroney’s trade legacy. No other country has it. No doubt Mr. Mulroney has discussed maintaining it with his West Palm Beach neighbour – future Commerce Secretary Wilbur Ross.

The U.S. Lumber Coalition wants to get rid of Chapter 19. Judicial review by domestic courts is less intrusive than Chapter 19. It is much more petitioner-friendly. The Coalition has been tireless in its efforts – and now has a White House prepared to listen.

This issue is much more important to Canada than to the USA. U.S. trade remedy targets in Canada, like lumber, beef and pork, are high volume exports. U.S. dumpling is challenged less frequently. I don’t recall any Canadian trade remedy investigations where U.S. exports were measured in billions.

Be prepared for a shotgun approach from U.S. negotiators – it will not be focussed – it will be comprehensive. In the confirmation hearings, Mr. Ross highlighted reductions in the value of the Mexican peso and the loonie as being not by accident. This is bizarre when President Trump is trying to talk down the value of the U.S. dollar to increase exports.

Dealing with unrealistic, emotional demands and President Trump’s shock tactics will not be easy. While we may not be the worst actors in this global vaudeville show, we may have to cope with more than being hit with cream pies.

It will be very difficult to monitor developments on specific products from outside the U.S. During the CUSTA negotiations I was in Washington scoping out client interests twice a month. I expect to be stocking up on flight passes.

In my next column I will discuss key U.S. players – those who will be charged with delivering the better agreements and more jobs President Trump has promised.

WTO wine challenge shows up U.S. double-standard on trade

My views on the U.S. challenge of B.C. wine in grocery store rules.

Twenty-five years ago we challenged U.S. practices at the General Agreement on Tariffs and Trade (GATT). U.S. lost on federal excise tax discrimination, as well as measures in 41 states and two territories.

GATT dispute settlement had no teeth – the WTO does. Time to re-do the challenges.

WTO wine challenge shows up U.S. double-standard on trade

iPolitics.ca – Opinion
By Peter Clark
Wednesday, January 18th, 2017

The Obama administration has launched a World Trade Organization challenge over how imported wines are denied access to B.C. grocery store shelves.

This challenge was expected to come early in the Trump administration. But the principal U.S. senators driving the bus are Democrats (no doubt they want the credit). A second challenge — of Quebec’s retail system for wine — is reportedly in the works.

This is not a simple regional complaint. It has very broad implications. It is about all U.S. wines, not only those from California. Senator Ron Wyden (D-Oregon) and Senator Patty Murray (D-Washington State) have supported the complaint.

Should the complaint succeed, improved access to U.S. wines would be extended to all imported wines, as required by the WTO Most-Favoured Nation obligation. At a minimum, I would expect to see the EU, Australia, New Zealand and perhaps Chile will join the parade as third party participants.

I was part of the Canadian team defending against EU and U.S. General Agreement on Tariffs and Trade (GATT) challenges of provincial beer and wine purchasing, mark-up and distribution practices. These disputes resulted in major changes to Canadian and provincial liquor board practices.

The U.S. does not come to the WTO with clean hands on wine distribution and taxation. In 1991, Canada brought a GATT challenge of U.S. excise tax discrimination and alcoholic beverage taxation and distribution at the state level. Canada won resoundingly. The GATT found against federal excise tax discrimination in favour of small wineries and a variety of measures in 41 states and two territories.

The U.S. declined to implement the findings because they were not prepared to engage state governments to change GATT-illegal practices.

The U.S. has a double standard when it comes to sub-national government trade practices. Washington finds it virtually impossible to regulate state practices. Thus, in practice, U.S. states have few (or no) real WTO obligations. ‘Buy American’ policies are the most egregious examples. At the same time, the U.S. insists on full compliance by Canadian provinces with Canada’s NAFTA and WTO obligations.

Don’t expect the double standard to change under the next U.S. administration. Indeed, we should expect, within NAFTA, different standards for the U.S., Canada and Mexico.

If the leaks from the transition team are accurate and the U.S. is successful in achieving some of its extreme initiatives, the implications of NAFTA re-negotiation will be broad and deep. Don’t count on Canada’s special relationship with the U.S. saving us from extreme disruption; that relationship no longer exists.

Softwood Lumber – The Other Shoe Drops

Negotiations towards a pre-emptive softwood lumber agreement were too slow for the U.S. industry.  The U.S. Lumber Coalition has launched Round V in the war on Canadian dumping and subsidies.  None of this has been proven yet – but while the process continues to some kind of settlement, Canadian exporters and the federal and provincial governments are about to be mired in tens of millions of (U.S.) dollars in legal fees and duties which could be in the billions.

My column in National Newswatch describes the launch of Lumber V and why it was necessary:

  • the U.S. Lumber Coalition’s ability to hamstring the Administration, and
  • British Columbia’s inability to design its own poison.

More coming early next week on why the fight this time will be much more difficult for Canada to manage.

Softwood Lumber – The Other Shoe Drops

National Newswatch
By Peter Clark
November 25, 2016

International Trade Minister Chrystia Freeland’s office has confirmed that the U.S. Lumber Coalition will file petitions in the fifth round of anti-dumping/countervailing duty today (November 25). Lumber V is moving from threat to reality.

The Coalition was pleased to see the end of the 2006 SLA. It did not work well for them. Cross border lumber wars are always fiercely fought. Trade remedies (anti-dumping and countervailing duties) have provided quick and effective relief for the Coalition – and the nightmares for the Canadian lumber producers. The Coalition has little incentive to settle for a deal that it does not want with Governments it does not trust.

Mutually unsatisfactory agreements are generally the best solutions and work well between governments. Canada understands this. Washington understands this. The Coalition does not care. In softwood lumber, the private interests represented by The Coalition have leverage which must be satisfied. Compromise for reasons which might motivate governments is not in the Coalition’s DNA.

The Coalition has a clear right to file complaints if the evidence supports its position. If the facts appear to support their position, the Coalition has nothing to lose by launching investigations. Indeed, recent tightening of U.S. Anti-Dumping and Countervailing Duty laws was not and is not targeted only at Chinese steel. These tougher trade remedy laws will apply in Lumber V investigations.

This filing was inevitable. Canada was not prepared to cap its exports at 22 percent of U.S. consumption. While managed lumber trade with the U.S. has become the norm, this was too much for Canada.

While the negotiations are between Canada and the United States, the Coalition has a veto over the settlement. The Coalition wants nothing to do with an extension or restoration on the same or similar terms as the 2006 Softwood Lumber Agreement. The Coalition is not a trusting lot when it comes to Canada. British Colombia has refused to abandon its favoured export tax mechanism of controlling exports.

The Coalition has made it clear that it would not accept an export tax based settlement. Some analysts suggest that the U.S. fared better under the 2006 deal than Canada. The 2006 agreement was done in part because the Coalition could avoid NAFTA and WTO dispute settlement, and partly because half a billion dollars in Danegeld. The new arbitration forum – the London Court of International Arbitration – didn’t work in the Coalition’s favour. There is no prospect that it can.

Within the Coalition, the distrust of British Colombian governments is even deeper than its distrust of the Government of Canada. That is reality. Prime Minister Trudeau has admitted that the Coalition has a veto which could kill an unsatisfactory deal.

With no hope of Canada buying into the Draconian trade restrictions, the Coalition has stepped up the pressure. This is not a case of no more Mr./Ms. Nice Guy. The Coalition has no need to feel loved. It has been sending clear and unequivocal messages for several years that it wanted nothing to do with a further extension of the 2006 Softwood Lumber Agreement.

The filing is not about President-elect Trump. President Obama could not derail the Coalition’s determined initiative. Nor could Minister Chrystia Freeland’s repeated meetings with USTR Michael Froman move the game in Canada’s favour.

Canadian Ambassador to Washington, David McNaughton, is a formidable political operator who has made fixing the lumber war a top priority. He is supported by a very competent team of negotiators including veterans of several iterations of the lumber wars. They are well connected and tireless in their determination. The surprise election results do not make their task any easier.

President-elect Trump has modified or appears to be modifying some of his more extreme campaign rhetoric on trade. But appearing to give Canada a pass on perceived unfair trade would be too big a flip flop for Mr Trump. The Coalition has a solid core of 25 Senators who would keep the Administration’s feet to the fire. Among them are Senators Ron Wyden, Marco Rubio, and Diane Feinstein. These high powered Senators have many other friends in the Senate who owe them favours and support. There is little love or tolerance in Congress for subsidized import competition.

Canada-U.S. lumber disputes are mainly about “stumpage” – the fee the provinces charge for harvesting standing timber on Crown lands. The Coalition claims Canadian stumpage charges are too low, which means they are lower than in the U.S., where the timber is harvested on lands owned by private companies. Compounding the Coalition’s complaints is a B.C. prohibition on whole-log exports which prevents U.S. lumber mills from buying less expensive Canadian logs and milling them in their U.S. operations.

Why have there been five rounds of litigation? Because the Department of Commerce rules and methodology determine that stumpage rates, in British Columbia in particular, are a subsidy. And because the Coalition, in pursuing its various initiatives, understands how to unleash the power of its supporters in Congress.

Ontario and Quebec have reformed their stumpage regimes since the 2006 SLA entered into force. Industry employment in Ontario has shrunk by 42 per cent or 26,000 jobs, while Quebec has reduced availability and charges much higher fibre costs than B.C. While Ontario and Quebec could agree to a new SLA, they will likely insist that it transition to free trade with clear and workable “exit ramps” for their good behaviour.

Achieving consensus within Canada on the need for another Softwood Lumber Agreement has been elusive. Other provinces have from time to time argued that government support for the B.C. industry distorts trade and competition in Canada.

Mr. Richard Garneau, CEO of Resolute Forest Products, the biggest Canadian softwood lumber producer east of the Rockies, seems to prefer to fight.

Mr Garneau is a very vocal critic of the 2006 deal. In testimony at the April 12 Commons Standing Committee on International Trade meeting, Garneau ran roughshod over supporters of the SLA. He said the 2006 deal worked well for B.C. but has been a disaster for Quebec and Ontario. He rejected claims of subsidization and wanted nothing to do with another agreement.

We now have the fight. Resolute may do well if the U.S. Department of Commerce is prepared to investigate and assign Resolute an company-specific rate, rather than a national one which could be inflated by subsidies in B.C.

To expect looser U.S. Administration of unfair trade laws in the U.S. at a time when the U.S. (as well as Canada and the E.U.) is determined to “modernize” their own trade remedies laws is likely a futile exercise.

The Trump Administration may bob and weave around the future of NAFTA. However, it will need to show increased toughness on enforcement of unfair trade laws. On trade, the Administration will not be fully organized or focussed for several months into 2017. Expect the United States Trade Representative, if it is ex-Nucor CEO Don DiMicco, to be absorbed with the China and steel overcapacity.

The U.S. Lumber Coalition will have an unimpeded run down the field until the countervailing duty rates and AD margins are announced, and perhaps thereafter. The pressure to negotiate and compromise is entirely on Canada. The Coalition benefits from delays.

Canadian exporters will now need to comply with the burdensome demands for information from U.S. investigators. Soon NAFTA and WTO dispute settlement will once again be bogged down with the latest Canada –U.S. lumber war.

No doubt there is some mutually unsatisfactory market share which astute negotiators can find. But as long as the Coalition is faced with demands for the 2006 model, which it does not like and does not trust, is there any incentive to move? If a hard cap quota is the only option, is there a deal to be found?

The negotiations have been dragging on because British Columbia wanted to extend (re-initiate) the 2006 Agreement. The Coalition did not agree and had been sending clear messages about this for at least two years. Premier Clark wouldn’t agree. The Coalition has raised the stakes. This would be an expensive bluff.

Trade remedy investigations are very time consuming and expensive. The legal fees will be mind-boggling with extensive legal teams racking up thousands of dollars per hour – U.S. dollars – in fees. Dispute settlements under NAFTA and the WTO are a slow, expensive and uncertain process. Delay and uncertainty will benefit the Coalition, and Canadian exporters will be seeking government help to finance until the matter is settled.

Lumber trade is very important to Canada and particularly to British Colombia. But there is a different mood in Washington. Trade agreements will be tested against benefits to the U.S. This is not a new or novel concept. The perception is that Mr. Trump won by trashing trade agreements and Secretary Clinton’s opposition was not persuasive.

Premier Clark has lost round one by refusing to move away from the 2006 SLA model. Now she hopes that proposed reconstruction and rebuilding infrastructure will protect Canadian lumber exports. I predicted recently that the infrastructure spending would involve a serious Buy American focus for steel, concrete and other inputs. Why not softwood lumber?

Hope is not a sound business strategy.

Trumpian Trade Policy – Welcome to the Twilight Zone

Will NAFTA renegotiations be a Godzilla vs Bambi affair?

Will the Trump Administration be able to run roughshod over Chinese rights?

Is the TPP really dead?

The answers are in my National Newswatch column – Trumpian Trade Policy – Welcome to the Twilight Zone

Donald the Destroyer

Will the Donald be the 45th President of the United States?

Are his threats on trade real?

Are there checks and balances on his trade powers?

These questions are answered in my iPolitics column – “Donald the Destroyer”.

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Lumber V: Avoiding Armageddon

The next round in the Canada – U.S. lumber wars may launch sooner than we think. In Question Period, Members of Parliament from British Columbia are pressing Trade Minister Chrystia Freeland to conclude a new softwood lumber agreement forthwith.

The Minister is taking time to get this deal done, but done properly, and in the national interest. Senator Pat Carney drove the first agreement when she was Trade Minister. David Emerson was the catalyst for the 2006 deal. There have been changes since the last agreement was negotiated. Quebec and Ontario have reformed their stumpage systems to achieve market based pricing in order to be rid of the perpetual trade dispute. At least one major producer (Resolute) is saying hell no, we won’t go.

Here is a glimpse of the complexities.

By mid-October, the U.S. Lumber Coalition (Coalition) will be able to file new anti-dumping and countervailing duty complaints against Canadian softwood lumber exports. Unless a replacement for the 2006 Softwood Lumber Agreement (SLA) can be negotiated in the next few months, Lumber V could be launched.

These perennial disputes feature extremely disruptive punitive U.S. duties. When Canadian exporters are threatened with the full force of U.S. trade remedy laws most Canadian stakeholders opt for the “least worst” option a government to government agreement to buy off the Coalition. Canada’s attachment to the rules-based international trading system will be abandoned in favour of managed trade agreements to buy peace – until next time.

SLA 4, or will it be 5, will not be possible unless the Coalition’s numbers are right for a launch. In addition, Canadian interests must agree on how they would prefer to be skewered this time. Ontario and Quebec are not on the same page as British Columbia.

How should exports be regulated under SLA 5? British Colombia prefers export taxes so that duties (based on alleged stumpage subsidies) go into its own coffers rather than the U.S. Treasury. Is this a silver lining? Would it help to explain Premier Christy Clark’s public demands for a quick negotiated solution?

Canada-U.S. lumber disputes are mainly about “stumpage” – the fee the provinces charge for harvesting standing timber on Crown lands. Coalition members claim Canadian stumpage charges are too low – read, lower than the U.S. where timber is owned by private operators. Compounding the Coalition’s complaints is a B.C. log export ban which prevents U.S. lumber mills from buying less expensive Canadian logs.

Ontario and Quebec have reformed their “stumpage” regimes.  Industry employment in Ontario has shrunk by 42% or 26,000 jobs since the 2006 SLA entered into force. Quebec has reduced availability and much higher fibre costs than B.C. While Ontario and Quebec could agree to a new SLA, they will likely insist that it transition to free trade with clear and workable “exit ramps” for their good behavior.

Lumber exporters in Atlantic Canada had a free pass under the 2006 SLA because stumpage rates were determined by private auctions. However, the recent U.S. Department of Commerce countervailing duty decision in Super-calendered Paper resulted in duties in the 20% range. Among the 14 countervailable programs found by the U.S. Department of Commerce was provision of stumpage by the Government of Nova Scotia at less than market value. This could draw Atlantic Provinces’ producers into the Coalition’s net.

Industry consensus on the need for another SLA has been elusive. Mr. Richard Garneau, CEO of Resolute Forest Products, the biggest Canadian producer east of the Rockies, is not as keen as Premier Clark is to negotiate.

Mr. Garneau is a very vocal critic of the 2006 SLA. His testimony at the April 12, 2016 meeting of the Standing Committee on International Trade runs roughshod over supporters of the SLA. Mr. Garneau claims the SLA worked well for B.C. but has been a disaster for Quebec and Ontario. He rejects claims of subsidization and wants nothing to do with another agreement.

These differences are not new. Canada tried to negotiate a second extension before the 2006 SLA expired. Extension on the same terms was not an option. The Coalition declined.

The Coalition was pleased to see the end of the 2006 SLA. It did not work well for them. Cross border lumber wars are always fiercely fought. Trade remedies (anti-dumping and countervailing duties) have provided quick and effective relief for the Coalition – and the worst possible nightmares for the Canadian lumber industry. The Coalition has little incentive to settle for an agreement less effective than successful AD/CVD litigation.

Most Canadian stakeholders attach great importance and high priority to a negotiated settlement. Richard Garneau is not interested. Even those who want to settle will be concerned about the terms. Reported Coalition demands for a single option with hard caps or strict quotas on Canadian exports have not been well received. British Columbia wants greater flexibility.

Uncertainties about the U.S. election have increased the urgency of demands for a negotiated solution. The Western provinces want a managed trade agreement and they want it soon – before November.

The election is increasing the focus of U.S. trade law administration on prosecution and enforcement. U.S. trade remedy laws have been amended and enhanced to make them more effective.

The prospect of a Trump Presidency adds urgency to an expedited negotiation. Hillary Clinton, who is being pushed left on trade by Senator Bernie Sanders’ success, has promised to appoint a Prosecutor to defend U.S. trade interests.

No matter who the next President is, the incoming Administration will be tougher on enforcement. And it will be completely disorganized and unfocussed for months into 2017. The U.S. Lumber Coalition will have an unimpeded run down the field until the CVD rates and AD margins are announced, and maybe thereafter. The pressure to negotiate and compromise is on Canada. The Coalition benefits from delay.

President Obama and Prime Minister Trudeau have instructed their trade ministers to identify options or a framework for resolution by the time of President Obama’s visit to Ottawa.

At the end of Prime Minister Trudeau’s state visit, President Obama noted –“each side will want 100 percent, and we’ll find a way for each side to get 60 percent or so of what they need, and people will complain and grumble, but it will be fine.”

Mutually unsatisfactory agreements are generally the best solutions and work well between governments. In Softwood Lumber the private interests represented by the Coalition have leverage and must be satisfied. Compromise for reasons which might motivate governments is not in the Coalition’s DNA.

USTR Michael Froman and Canada’s Trade Minister Chrystia Freeland have a big challenge – like herding ornery cats or containing a herd of bullfrogs in a wheel barrow. There are divergent interests in Canada to accommodate and the leverage is on the Coalition’s side. Delay increases their leverage in settlement negotiations.

The Coalition has a clear right to file the complaints if the evidence supports their position. If the facts appear to be right. Coalition members have nothing to lose by launching investigations. Indeed, recent tightening of U.S. Anti-Dumping and Countervailing Duty laws was not and is not targeted only at Chinese steel. These tougher trade remedy laws will apply in Lumber V investigations.

The Coalition will be encouraged by the subsidy margins in super-calendered paper and by the methodology employed by the U.S. Department of Commerce in that investigation.

The Canadian Government was quick to challenge U.S. DOC methodology in super-calendered paper. The NAFTA and WTO challenges have begun. Canadian officials are confident they will prevail.

Trade Remedy investigations are very time consuming and expensive with extensive legal teams racking up thousands of dollars per hour -(US dollars)- in fees. Dispute settlement under NAFTA and the WTO is a slow, and also a very expensive and uncertain process. U.S. officials and stakeholders have been very critical of WTO decisions which often overturn DOC methodology. Indeed the U.S. is injecting ‘oversight’ into the Appellate Body selection process as Washington is blocking re-appointment of a “rogue” Korean member.

Canadian stakeholders have not been sitting on their hands waiting for negotiations to succeed or fail. They have been “lawyering up” as they hope for the best and prepare for the worst. There has been a long time since it was clear that SLA 2006 would expire and they appear to be using the time well.

Prime Minister Trudeau has raised concerns with President Obama. Minister Freeland has been doing her own coalition building meeting with the U.S. National Association of Home Builders and others supportive of Canadian lumber exports. Follow the Minister on Twitter @canadatrade May 2 and @cafreeland.

Some central Canadian producers are confident stumpage reforms have eliminated subsidies and that the soft loonie will minimize dumping margins. Resolute is gearing up for a fight. Others too must be prepared. Hoping the problem will go away is neither a sound nor a prudent business strategy.

The legal fees will be mind-boggling. It will be back to the good old pre-SLA days for the Washington Trade Bar. And this is part of the problem – litigation is more lucrative than settling.

But costs may also help to drive the solution. The relative peace of the SLA period has saved industry on both sides of the border. Neither side wants a bad deal. There will be a premium on certainty.

Delay could be painful for Canadian exporters as duty collections can rapidly grow to billions of dollars. And if the remedy duties are diluted (Resolute’s initial CVD rate in Super-calendered paper was about 2%) or eliminated, the Coalition will have gambled and lost.

Trade litigation is a means to an end – it is more than chain rattling. Canadian exporters want and need to limit disruption to trade. For the Coalition, an agreement can bring relief without the risk of remedies being overturned by dispute settlement under NAFTA or the WTO.

No experienced negotiator begins with the bottom line. There will be a lot of fencing and jousting on the way to common ground. There are complexities in Canada which may delay the process. Delay and uncertainty favour the Coalition – it seems likely that notwithstanding the best efforts of Canadian and U.S. governments, litigation will be launched before a settlement is reached.

An edited version appeared in my iPolitics column.

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Jindal Steel and Power secures no injury finding in Canadian Plate Inquiry

The CITT decision in Plate 8 has not been posted yet on the Canadian International Trade Tribunal’s website so here it is (Finding and Reasons). No injury decisions on major steel cases in Canada are rare. The last was cold-rolled in 2001. I recall it well as 9-11 occurred mid-hearing and one of my witnesses from Brazil was not at all interested in leaving his hotel.

The Tribunal’s reasoning is quite illuminating and WTO-sensitive. And given the economic downturn and the fact that the complainant Essar Algoma was in its second round of seeking creditor protection in less than 15 months, the Tribunal properly applied the WTO requirements that injury from non-dumping and non-subsidizing factors should not be attributed to imported goods.

Very refreshing as the U.S. tightens its system – an important concern for softwood lumber exporters – and announces inquiries into how to reinforce import regimes for steel and aluminum products.

Importers and exporters to Canada should understand that one case does not establish a trend. The CITT just completed its public hearings on small diameter land pipe and at least three more steel complaints are in the works. Win or lose (and file for judicial review), the process insulates the market for two years to 5 or more – usually with an excellent risk reward ratio.

Sun Sentinel Endorsement – None of the above

The Florida Sun Sentinel has refused to endorse any of the GOP candidates.

Their reasons seem sound. Marco Rubio should fare better in his home state but seems to be paying for trashing former Governor Jeb Bush, the Sentinel’s early choice.

The condemnations of Rubio – gets elected and doesn’t go to work – yesterday’s views on issues important to Floridians. Elected to the senate and started running for president. Reminds one of a Chatty Cathy doll.

Many Floridians would find Cruz scary, Cruz doesn’t understand military bombing technique. The evangelical card does not play well in Florida. John Kasich’s campaign is uninspiring. Too little too late.

The Donald attracted the usual complaints and condemnation but his appeal is not dead. Like Senator Bernie Sanders, he has tapped into anger and dissatisfaction driven by growing inequality. The elites ignore this at their peril.

I am in Canada so am missing the bombardment of negative attack ads in Florida. Beating up on Trump seems to solidify his support.

Will voters Trump has attracted stay with the process if he does not or cannot? Would Sanders Blue collar supporters migrate to Trump?

Michigan should set the tone for March 15.