International Trade

U.S. Steel Producers Ready to Rumble

U.S. Steel Producers Ready to Rumble

By Peter Clark
August 25, 2017

The pressure on President Trump rises for National Security Action on steel.  There is consolidated pressure from the steel industry. The push back by big users and their political supporters against this unnecessary action continues. Even the Trump Cabinet is split.

Is this Peter Navarro and Secretary Ross against the adults in the White House and the automotive industry and other large users? Quite likely.

There have been increased imports perhaps pulled in by the threat of National Security cutbacks.

See below for reports on imports (from offshore) trends. In fact, Canada is the largest foreign source of imported steel. But NAFTA precludes import controls for Trumped-up National Security reasons. NAFTA requires it be real National Security – tied to warfare and military defence. Brazil is significant too, but it seems to me that Brazilian exports of steel are focussed in semi-fabs

US steel producers press Trump to take action NOW against imports

In The Right Vein
By Alan Patrick Ryan
August 25, 2017

US steel producers want action NOW. The lead 25 US steel producers sent a letter to President Trump yesterday asking him to take “board and decisive action” against steel imports. Saying the need for action is urgent, the producers pointed out since the 232 investigation began in April, imports have continued to surge. “Immediate action must meaningfully adjust imports to restore healthy levels of capacity utilization and profitability to the domestic industry over a sustained period,” the producers wrote.

US steel imports continue to increase

In The Right Vein
By Alan Patrick Ryan
August 25, 2017

US imported a total of 3,472,000 net tons of steel in July 2017, including 2,868,000 net tons of finished steel (down 11.5% and 4.0%, respectively, vs. June final data), based on preliminary Census Bureau data. Year-to-date through seven months of 2017, total and finished steel imports are 23,168,000 tons and 17,938,000 tons up 22.1% and 17.3%, respectively, vs. the same period in 2016. Annualized total and finished steel imports in 2017 would be 39.7-and 30.8-million tons, up 20.3% and 16.8%, respectively, vs. 2016. Finished steel import market share was an estimated 29% in July and is estimated at 28% YTD.

Key finished steel products with significant import increases in July compared to June include standard pipe (up 38%), cut lengths plates (up 28%), line pipe (up 17%) and oil country goods (up 12%). Major products with significant year-to-date (YTD) increases vs. the same period in 2016 include oil country goods (up 254%), standard pipe (up 47%), line pipe (up 39%), cold rolled sheets (up 37%), sheets and strip all other metallic coatings (up 35%), mechanical tubing (up 32%), hot rolled bars (up 26%), sheets and strip hot dipped galvanized (up 25%), wire rods (up 13%) and tin plate (up 11%).

Who’s shipping steel to the US, definitely not China

In The Right Vein
By Alan Patrick Ryan
August 25, 2017

In July, the largest volumes of finished steel imports from offshore were from South Korea (337,000 tons, down 13% from June final), Turkey (252,000 tons, down 23%), Germany (148,000 tons, up 27%), Japan (137,000 tons, down 2%) and Taiwan (120,000 tons, down 29%). For the first seven months of 2017, the largest offshore suppliers were South Korea (2,265,000 tons, down 5% vs. the same period in 2016), Turkey (1,723,000 tons, up 14%), Japan (937,000 tons, down 12%), Taiwan (784,000 tons, up 54%) and Germany (750,000 tons, up 7%).

China accounted for only 82,000 tons in July, up 4.6% from June; for the first seven months of 2017, China supplied 506,000 tons, down 1.7% from the same 2016 period. On an annualized rate, China will export 868,000 tons, up 0.7% from 2016.

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NAFTA round one is over — and we’re getting to the trading-threats stage

NAFTA round one is over — and we’re getting to the trading-threats stage

By Peter Clark
August 21, 2017

The first round of the NAFTA re-negotiations is over. You can find the communiqué here. It’s dull pap meant to paper over differences and offer hope for some non-existent momentum.

The negotiations discussed, in a rather general way, how particular issues might be addressed — through conceptual presentations. There is still too much to do in too little time.

What struck me most about this week at the Marriott by the Zoo was what we didn’t see. There were no protesters, no clouds of teargas. There also was no progress, no apparent substance — leading to the very real risks of these talks collapsing, sooner or later.

The resurrection of the Trans-Pacific Partnership should have brought protesters out in droves. Perhaps the presidency of Donald J. Trump is such a target-rich environment for protesters that they have to be choosy about their gigs.

Don’t expect the same relative calm at Mexico City. There will be protesters, likely in force. Negotiators, stakeholders and the press may need to run a gauntlet between their hotels and the venue.

There was no movement last week on the most contentious issues. Consensus is a long way off, if it’s attainable at all.

Canada and Mexico believe their objective is to modernize NAFTA. This means building on NAFTA, bringing in 21st century issues and seeking important overall improvement. Canada’s model free trade agreement would build on CETA more than the TPP.

The U.S. is treating the talks as a re-negotiation – which would eliminate those parts of NAFTA which the U.S. does not like, to rebalance the deal in its favour.

Canada and Mexico want an everybody-wins result, focused on increasing trade and making NAFTA more acceptable to the general population by making it more inclusive and responsive to society’s evolving needs.

U.S Trade Representative Robert Lighthizer’s introductory speech made it clear that the Trump administration is mired in an outdated, mercantilist win-lose strategy. This is likely not saleable, and pushing it too far could jeopardize the livelihoods of tens of millions of American farmers, ranchers and manufacturers on the cutting edge and their workers.

Canada’s proposals on gender, Indigenous peoples and climate change have not been explained in detail. The very idea of including them in a trade agreement is no doubt perplexing to this U.S. team.

If NAFTA 2.0 is to be a model for future free trade agreements, it must be progressive. Canada considers these initiatives to be evolutionary. Washington will see them as revolutionary — and not in the good sense of the word. There is a significant gap to be bridged.

Canada believes that these new progressive issues must be reflected in future agreements in order to make them relevant to the evolving realities of international trade. The Trump administration and its negotiators will need considerable education and enlightenment to accept this.

U.S. demands on NAFTA Chapter 19 and global safeguards are extreme. These were conceptualized last week; there has been no formal engagement, nor have Canada and Mexico embraced this concept.

Trust and respect are essential in trade negotiations. It is difficult to muster trust when the one doing the demanding is not prepared to discuss those demands, or consider trade-offs to achieve them. Asking for clarification is not obstructionist. It’s what negotiations are about. This is a negotiation, after all. Trust will be difficult to develop as long as negotiations are mired in a swamp of uncertainty.

Negotiators will want to get U.S. demands and offers in writing and will be watching carefully for signs of a bait-and-switch. Normally one needs to ensure Congress will buy into the deal. In NAFTA 2.0, POTUS is the wild card. Trust cannot flourish if one is always waiting for the next tweet or eruption from the White House.

Negotiators are trying to combine texts and concepts from all parties so that negotiators will have something to work from in Mexico City. Washington’s proposals reflect its newly re-discovered attachment to the TPP — in some cases TPP plus. Canada and Mexico apparently believe that it’s better to start from the existing NAFTA text. Canada is partial to changes which will reflect CETA.

Negotiations will resume in Mexico City September 1-5. Mexican Secretary of Economy Ildefonso Guajardo Villarreal must travel to China with President Peña Nieto on September 2. This is likely to delay the ministerial meeting until September 6 or 7.

Real engagement cannot begin before the Mexico City round — the texts cannot be ready. Canada and Mexico need to consult stakeholders about specifics and discuss political implications of the U.S. conceptualizations.

This environment is ripe for spreading misinformation and casting blame. President Trump has already tried to tear up NAFTA once. Bad timing. How credible will the next effort be? Maybe he can blame Canada for daring to be different and favouring progress over backsliding.

Canada has been pushing back on unwarranted U.S. demands on dairy and Chapter 19. Attempts to tighten automotive rules of origin will be fought tooth and nail by both Canada and Mexico.

It is said that Lighthizer only talks about NAFTA to the president and to Chairman of the Senate Finance Committee Orrin Hatch. Senator Hatch is key to Congressional approval of the end result.

Data protection of pharmaceutical products is Senator Hatch’s issue. It is an important reason TPP was not approved by Congress. Canada is now at eight years’ data protection. How difficult will it be to move to 12 years? Is it possible at all? This would affect every Canadian, as well as federal and provincial budgets. Making Senator Hatch happy could well be the “go no go” issue for the deal.

The really tough issues have not been discussed in detail yet. But Ambassador Lighthizer’s opening speech set the tone. Canada and Mexico did not much like that tone, and U.S. conceptualizations did not reduce their concerns. If the environment had improved since, there would have been high fives and talk of early harvests.

The talks in Mexico City, followed by a third round in September in Canada, will determine whether or not a deal can be done early in 2018.

I have grave doubts about whether this schedule is realistic. President Trump will end up with several options. He can reduce his ambition to fit a practical timeframe and result, or extend the deadline (very difficult with the impending elections) — or he can announce he intends to terminate NAFTA.

Even announcing the intention to terminate would court serious pushback in the U.S. Lighthizer will be determined to win — but at that stage, what would a win look like?

I doubt that NAFTA 2.0 will be concluded without a confrontation involving someone walking away or threatening termination.

The rest of the world is watching these talks closely. Who knows which country will be the next to be hit with demands for re-negotiation? Korea is already on the list and is trying to get more preparation time.

Successful negotiations reflect a balance of rights and obligations. NAFTA is a good example. Lighthizer is trying to rebalance NAFTA by enhancing U.S. rights and increasing Canadian and Mexican obligations.

Will it work, or is bullying out of fashion in international trade relations? It should be.

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NAFTA negotiations: Are the Americans here to talk, or to blow it all up?

NAFTA negotiations: Are the Americans here to talk, or to blow it all up?

By Peter Clark
August 18, 2017

Day two of the NAFTA 2.0 talks was a pleasant Washington summer day. Sunny, not too muggy — and not the “sunny ways” Canada has been hoping for.

Never have so many trade negotiators laboured so much with no apparent progress. Day two was about preparation and atmospherics — and the buzz over U.S. Trade Representative Robert Lighthizer’s over-the-top aggression.

Lighthizer, like Elvis, has left the building, as have his ministerial counterparts — but his forceful opening presentation still dominates the chatter.

It is a strange thing to bring the baseball bats out from under the table so early in a negotiation. But if the objective was to capture the attention, Lighthizer did — like Robert De Niro did in The Untouchables.

Meantime, we will wait for any signs of movement (a breakthrough would be nice) but that might be too much to ask for. We could visit the zoo next door … or should we wait for the zoo to come to us?

This circus is rapidly becoming the Trade Lawyers and Instant Trade Experts Relief and Retirement Act of 2017. They should commission a statue of President Donald Trump and place it in the 2000 block of K Street. It may not live long enough to be an eyesore.

There are stakeholders in abundance — old friends anxious to know what the other thinks about the process, looking for hints from negotiators trained not to tip their hand.

Others are pleased to know nothing is happening because it is sinking in now that no news is good news — that anything Lighthizer is likely to announce will be bad news, or worse.

Sending his message over international TV to viewers in the NAFTA countries this did not sit well with his trading partners. Corridor chat here indicates serious concerns about a U.S. list of demands that would amount to political suicide in Ottawa and Mexico City. Will Canada or Mexico be given a choice, other than take it or leave it?

Importers of Mexican produce are worried that re-jigging anti-dumping laws could be devastating. Without NAFTA, garments and footwear from Mexico could face prohibitive tariffs. This will benefit Vietnam and Bangladesh, where duties don’t matter much. And special arrangements giving access to Canadian and Mexican apparel makers are in highly protectionist crosshairs.

Most worrying is the impending battle over automotive rules of origin; clearly the U.S. team is not listening to the Detroit Three and other industry stakeholders. Mexico and Canada cannot live with rumoured remedies, such as:

  • increasing content levels above 70 per cent;
  • making steel traceable — no credit for steel content unless it is NAFTA origin steel;
  • requiring minimum U.S. content.

Can the Big Three adapt? Do they want to?

U.S. farmers, ranchers and manufacturers are perplexed; they urged the administration to do no harm. Now they are being ignored. At the same time, Lighthizer is stepping up bilateral negotiations with Japan which can mean little good to Canadian beef and pork producers.

The Trump factor has turned the negotiating process on its head. No one knows what to expect. There are Vegas odds on how long he will last. Many were lulled into a false sense of security by his assurances that Canada was not the problem, that all we should expect was a few “tweaks” to the package.

I suggested at the time that playing this game would open a Pandora’s box. I was wrong. It now looks like it will be worse.

Why intelligent businesspeople would believe anything coming from the lifetime winner of the Washington Post’s Pinocchio Award boggles the mind. Those who took a wait-and-see approach to preparing for the Trade Tsunami which will be released in the U.S. negotiating texts this week may find themselves reading post-mortems — their own.

There are voices of reason here, offering messages that are comforting to us. But not to Lighthizer and his ‘Goodfellas’. Nor will they be impressed with our statistics. Lighthizer had to go back 10 years to a strong loonie, pre-Fracking period to pull together a big number for a Canadian 10-year trade surplus.

Lighthizer also has personal skin in the game — skin which he should have parked when he took the job. He spent decades protecting the U.S. steel industry and pursuing personal vendettas through Chapter 19 and WTO dispute settlement.

When Charlene Barshefsky was appointed USTR, she recused herself from dealing with issues she was involved with in her prior private practice. Whatever principles guided Ms. Barshefsky are no longer fashionable in the Trump administration.

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The NAFTA talks will not be fast…or friendly

The NAFTA talks will not be fast…or friendly

By Peter Clark
August 16, 2017

I’m off to Washington for round one of the NAFTA 2.0 negotiations. There may be some minimal harvesting of low-hanging fruit this week. President Trump wants more, of course.

He needs something to distract from the daily disintegration of his administration. NAFTA must be demolished and rebuilt to his design — or perhaps just scrapped like the TPP.

The presentations Wednesday by the representatives of the three NAFTA nations — Foreign Affairs Minister Chrystia Freeland, U.S. Trade Representative Robert Lighthizer and Mexico’s Secretary of Economy Ildefonso Guajardo Villarreal — were set pieces, offering no real surprises. I liked Secretary Villarreal’s approach and tone, focusing on the need for transparency and the importance of building on success and not tearing apart what isn’t broken. Unfortunately, one of the players is focused on its own priorities.

The professionals are engaged in detailed work and there is enough to keep them busy for months. There are 28 negotiating groups. I understand there are ten or more groups working in parallel at any given time. Only after initial engagement and sparring will the timing become clearer.

There will not be a quick deal. My estimate is a minimum of six months of negotiation before we see anything.

President Trump’s promised fix by ‘tweaks’ has fallen victim to White House revisionism. The official U.S. line from Mr. Lighthizer is that the president now “is not interested in more tweaking of a few provisions and a couple of updated chapters. We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement.”

If the press conference was supposed to project a friendly atmosphere, the friction not far below the surface signally failure. Personally, I didn’t expect anything other than chest-thumping scare tactics from Mr. Lighthizer.

The administration’s objectives for the automotive sector, more NAFTA content and more U.S. content, are potentially disastrous. Obviously the “do no harm” message is falling on deaf ears. Notwithstanding strong messages from automotive stakeholders desperate to avoid disruptive change, the steel-hawks are still in charge of the chicken coop. If the auto trade deficit is “fixed” with tougher Rules of Origin (ROO), the U.S. deficit in automotive trade could shift to new countries.

If the automotive ROOs become more onerous, the U.S. may find the industry willing to shift to other sources of steel and simply pay the duty. The U.S. Most Favoured Nation rate on autos is 2.5 per cent. Auto parts are generally dutiable at 2.5 per cent. This minimal preference will not drive sourcing decisions. Currency can move more than the duty rates without being labelled ‘manipulation’.

Can NAFTA negotiations with Canada and Mexico solve the U.S.’s overall deficit problems? Not likely. Why has the U.S. trade deficit increased? Look no further than the trade deficit with China over the period since CUSTA and NAFTA entered into force.

It is elementary that no country can run trade surpluses with all its partners. Smoot and Hawley tried, failed miserably, and crashed the global economy. Secretary of State Cordell Hull persuaded Congress to pass the Reciprocal Trade Agreements Act in 1934. This was the start of the Most Favoured Nation approach — the underpinning of the multilateral approach to trade liberalization. Strict bilateral balancing will lead to the lowest, least ambitious possible result.

President Trump is under pressure and will want big wins, and early wins at our expense. U.S. negotiators cannot participate in a love-in. We know about Mr. Lighthizer’s instinct for the jugular, even at the best of times.

Mr. Lighthizer tried to contrast the support for NAFTA expressed by farmers, ranchers and those living near the border (you forgot the East Coast and West Coast states, sir) with lost jobs in fly-over America.

But there are other interests involved, including congressional leaders who are also pleading with the negotiating team to “do no harm”. They cannot be ignored. Hopefully, our friends weigh in to prevent further folly.

Complicating the negotiating environment is a new trade remedies petition on groundwood paper from Canada. That’s not a welcome initiative at all, with so many problems at the table – but this does not have anything to do with NAFTA. Mr. Lighthizer will say that the administration cannot deny American businesses their right to complain about “unfairly traded” imports.

I do not expect any movement on sensitive issues until close to the New Year. Four months is a long time in the land of instant political gratification and rapidly evolving priorities.

NAFTA 2.0 may not fit traditional negotiating templates. The importance of the negotiations — and the need to avoid serious, potentially irreparable damage — calls for preparation, flexibility and the considerable intelligence and experience of our world class team.

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NAFTA 2.0 – Canada’s Wish List

NAFTA 2.0 – Canada’s Wish List

By Peter Clark
August 15, 2017

Canada has jumped into the NAFTA re-negotiation fray with high ambition and a heavy dose of social conscience. Global Affairs Minister Chrystia Freeland has finally revealed Canada’s priorities in the negotiations. Canada will not simply accept the U.S. effort to transform the Trans-Pacific Partnership and bits and pieces of the Canada – E.U. Comprehensive Economic and Trade Agreement (CETA) into a “new and improved” NAFTA. New and improved for President Trump, that is.

As a communications exercise, the Minister’s presentation was great. I did not expect her to get into the nitty gritty detail and she didn’t. There is little value in telegraphing the fine details of one’s position before absolutely necessary.

The core objectives hit all the right hot buttons and play to many of the key stakeholders. The objectives are a balanced mix of offensive and defensive priorities.

Some of the Canadian objectives may have a very short shelf life. The Ministers will be meeting over dinner on August 15 in Washington. They will be focussing on scheduling and probably on identifying “no go” issues – those not ripe for negotiation, perhaps never.

I am not certain how many negotiating groups there will be. Canada’s Chief Negotiator, Steve Verheul, says he is able to staff 28 groups. Others have suggested there will be fewer. Perhaps they have fewer issues.

Will any issues miss the cut? Are any likely to fall off the Ministers’ table?  I expect that Ambassador Lighthizer will state that elimination of NAFTA Chapter Nineteen is non-negotiable – it is a done deal. Then not only does Canada need to negotiate to keep it, we will have to negotiate to keep it in play.

Most negotiations start with everything on the table.  Will any issues miss the cut? Are any likely to fall off the Ministers’ table?  What if  Ambassador Lighthizer declares that elimination of NAFTA Chapter Nineteen is non-negotiable, that there is no point discussing it?

Such a scenario may be a stretch but there are no rules in a trade negotiation at the best of times.  Refusing to discuss particular issues could lead to a great unravelling.  While I doubt that the U.S. will want to sabotage the talks before they start, I do not expect  smooth sailing.

Canada and Mexico want to discuss better visa-free access for business professionals. This was not among the objectives tabled with Congress by US Trade Representative Ambassador Robert Lighthizer. Canada attaches high priority to modernization and updating the list of qualified professions. Many high tech professions did not exist 25 years ago. The NAFTA oil and gas industry considers expansion of the list to be a priority.

Don’t expect Ambassador Lighthizer to be prepared to engage on issues which appear to undermine President Trump’s Buy American, Hire American policies. If ‘America First’ politics drive the U.S. priorities, it will be very difficult to achieve a balanced result.

Canada wants to negotiate on climate change in the Environment Chapter. The world – at least much of the E.U. – will be watching with interest. Climate change is not a priority for the U.S. – indeed, the USDA has instructed staff not to refer to it as such. Extreme weather event is the approved description. It may be a “no go”. Why would Ambassador Lighthizer agree to put his President on the spot?

The U.S. will be prepared to begin negotiations on the Environment with the TPP text. Canada will be much more comfortable with CETA — which already accepts climate change language — as the starting point.

Including a Trade and Gender Chapter in NAFTA is progressive. Canada already has Trade and Gender in its FTA with Chile. The White House may like this. Was the idea run past Ivanka Trump?

There are special provisions in the TPP which guarantee more favourable treatment for New Zealand Maori. The U.S. has special procurement carve outs for indigenous business, as does Canada. There is no reason Canada should not pursue special treatment for its First Nations, Métis and Inuit and their businesses. Canada could begin by extending to First Nations and Inuit their rights under the Jay Treaty of 1794, which provided for free movement across borders for indigenous peoples and their goods.

The U.S. respects its Jay Treaty obligations. Canada does not – perhaps because the treaty was done between the United States of America and His Britannick Majesty. Indigenous rights was not included in the U.S. NAFTA objectives published on July 17. Did Canada give Washington a heads-up that this was important?

I didn’t hear much from the Foreign Affairs Minister about Canada/Mexico issues. The new Labour and Environment Chapters will be important for — and perhaps in the minds of some, aimed at — Mexico. But the labour safeguards negotiations will likely begin with TPP Chapter 19 on labour rights.

We should expect that the U.S. will play divide and conquer with both Canada and Mexico. The temptation will be too hard to resist – there are no rules in a knife fight, nor in this type of negotiations. It is not in Canada’s interest, nor in Mexico’s, to join the U.S. in piling on the other.

Minister Freeland correctly predicts a tough negotiation. For months, this has been blindingly obvious. It will be difficult for all negotiating teams to work with the uncertainties created by the Tweeter in the White House. But Canada has a highly experienced team at the negotiating table. They are our first line of defence.

The Interagency hearings chaired by U.S. Chief Negotiator John Melle, June 26 to 28, revealed Canada and Mexico have many friends and good customers in the U.S. Many stakeholders told Mr. Melle and his interagency colleagues that Canada and Mexico were not a problem. They discussed how their exports had doubled, trebled and quadrupled under NAFTA.

They were adamant that the Administration should do no harm. True, a few with trade irritants were there too. Often other stakeholders would challenge and rebut the critics. The consensus was not unanimous but it was strong and favoured keeping and improving NAFTA.

This positive attitude towards NAFTA, and the relationship-building being quarterbacked by the Canadian Embassy in Washington (and the team in Ottawa) is crucial. It underlines that NAFTA and free access to the Canadian market benefits millions of middle class Americans.

I am pleased to hear the Minister say that she will not accept a bad deal. What constitutes a bad deal remains to be seen. The Ministers’ press conference the morning after their dinner may help to better define the scope of the negotiations and priorities. Canadians then will better understand the prospects for improving its most important trade agreement.

NAFTA can be improved for all concerned – if the professionals are left to do their job. There will likely be an unusually high level of Ministerial involvement – which is not necessarily a good thing.

Ministers should be called upon, when needed, to break up logjams and resolve impasses. Their routine involvement would inject political priorities and egos. The negotiations may, at times, be plodding – but such processes are designed to reach mutually unsatisfactory agreements. Experience has proven that this is the best kind of outcome.

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Climate Change in NAFTA

Climate Change in NAFTA

The July 17 U.S. proposals for the Environment chapter in NAFTA 2.0, reflect the final TPP text. The objective is exporting U.S. standards to the rest of the world. The TPP text is silent on climate change.

President Trump’s decision to walk away from The Paris Accord could give the U.S. stakeholders a significant competitive advantage over competitors in countries with CO2 control/reduction regimes.

Canada should pursue its own objectives – and reject the underwhelming U.S. objectives. The CETA text would be much more relevant in negotiating an Environment chapter.

Canada’s hope to get climate change into NAFTA could prove difficult

The Canadian Press
By Mia Rabson
August 8, 2017

OTTAWA — U.S. President Donald Trump’s stance on climate change may end up being the biggest stumbling block in NAFTA talks when it comes to the environment.

Prime Minister Justin Trudeau reiterated Friday during a tour of eastern Ontario that he wants climate change, reducing emissions and moving to a low-carbon economy to be written into the new NAFTA when Canada, the U.S. and Mexico begin renegotiating the deal later this month.

“We are certainly looking for a better level playing field across North America on environmental protections,” Trudeau said.

However with Trump withdrawing the U.S. from the Paris climate change agreement, referring to climate change as a “hoax” and pledging to return the U.S. coal industry to its glory days, the White House and the Canadian government are pretty far apart on many environmental issues.

Even getting the words “climate change” into the agreement could be a struggle.

A government official speaking on background told The Canadian Press last week, that on the environment side, Canada will be looking to the free trade agreement recently signed with Europe, known as the Comprehensive Economic and Trade Agreement, or CETA, as a template.

Foreign Affairs Minister Chrystia Freeland has referred to CETA as the gold standard of trade agreements when it comes to the environment and said she wants to push CETA’s environment chapter with the U.S. and Mexico on NAFTA.

However, several trade experts say the United States is going to be pushing for the environment chapter in NAFTA to be more closely aligned with the now-defunct Trans Pacific Partnership or TPP.

One key difference?

CETA mentions climate change. TPP does not.

“CETA is more relevant to Canada and the TPP is more relevant to the United States,” said Peter Clark, an international trade expert and president of the Ottawa firm Grey, Clark, Shih and Associates.

Several American states are stepping up to maintain their climate change commitments despite the federal government’s pullback, however NAFTA isn’t being negotiated at the state level.

Tim Gray, executive director of Environmental Defence, said whether Canada can push the U.S. into adding climate change protections and mitigation to NAFTA may depend on how influential state governments can be in the talks.

“Major economies like California and northeastern states that already have various forms of carbon pricing may have a real interest in this,” he said.

Canada’s coming national price on carbon adds further fuel to the debate, as some will be looking for Canadian industries affected by the carbon price to get protections, maybe even in the form of a carbon tax applied at the border on goods coming from places in the U.S. where there is no such policy.

Clark said mischievously he recommends Canada seek a border adjustment carbon tax at best, but at a bare minimum he believes Canada should require the Paris Agreement be added to a list of multilateral environment agreements to which NAFTA countries must belong.

In its list of objectives for NAFTA released last month, the Office of the United States Trade Representative said it wants NAFTA to require signatories to adopt and uphold their obligations under several such pacts, including the Convention on International Trade in Endangered Species of Wild Fauna and Flora.

“I think Canada should immediately add the Paris accord to that list,” said Clark.

CETA also has what it is known as the “precautionary principle,” which means a party proposing a development or an action has to prove it won’t harm the environment, even if only some, not all, scientists agree it could be harmful.

In CETA there is also a provision which says that the costs of pollution are borne by the polluter and requires Canada and Europe to prioritize trade in environmental goods and services related to renewable energy and co-operate on climate change adaptation and mitigation. It also makes clear that foreign companies cannot claim compensation when they believe a government’s environmental regulations or policies harm their business.

Canada has been subject to several such challenges under NAFTA and lost many of them, paying millions in compensation.

TPP, on the other hand, includes a provision to allow countries to suspend trade benefits with a country that doesn’t respect its environmental responsibilities.

One area where both Canada and the United States agree is in bringing the environment chapter into the main NAFTA papers. In 1994 it was included as a separate annex.

Including it as its own chapter in NAFTA would make whatever environmental obligations it puts forward subject to the agreement’s dispute resolution provisions.

However, Clark said Canada cannot really insist that environmental provisions are make-or-break requirements.

“I can’t see us walking away over it,” he said. “It’s important, but what kind of leverage do they have?”

If Canada says it will leave the table unless Trump agrees to put climate change into the agreement, he’s likely to say ‘fine, go ahead’, said Clark.

“This is not really a typical trade negotiation,” he added.

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Little baloney in Carr’s assertion that Canada has won softwood challenges

Peter Clark consulted in softwood lumber challenges…

Little baloney in Carr’s assertion that Canada has won softwood challenges

The Canadian Press
By Andy Blatchford
May 18, 2017

OTTAWA — “There were court challenges in these other disputes. We have won them all.” — Natural Resources Minister Jim Carr on April 25.

Natural Resources Minister Jim Carr has been offering reassuring words as the country prepares to defend its softwood lumber industry yet again from duties imposed by the United States.

The latest round marks the fifth time in about 30 years that Canada will engage in a softwood dispute with its biggest trading partner.

“We have prevailed in the past, and we will do so again,” an optimistic Carr told reporters late last month.

He called the U.S. decision to impose countervailing duties of about 20 per cent for most mills “unfair” and “punitive.”

“Our government disagrees strongly with this decision,” he said. “It is unfounded, and we will vigorously fight for the interests of the Canadian softwood lumber industry, its workers, and their communities.”

Carr also insisted that Canada has won every court challenge of the past.

Has Canada indeed been victorious in every court challenge linked to softwood trade disputes with the U.S.?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of “no baloney” to “full of baloney” (complete methodology below).

This one earns a rating of “a little” baloney. Here’s why.


The Trump administration triggered the latest softwood skirmish by imposing retroactive duties on Canadian lumber.

For decades, the U.S. has argued that Canada’s lumber producers are unfairly subsidized through cheap access to public land. The on-again, off-again dispute has led to duties, court battles and periods of peace with the help of temporary agreements.

Cross-border lumber quarrels are older than Canada itself and date back to the first half of the 19th century, Carr said recently.

The minister insists Canada has been victorious in all the court challenges in the “contemporary era” of the lumber disputes that began in the 1980s.

This time around, he says the federal government will tell their U.S. counterparts that Americans will also feel the pain from the border duties because jobs in both countries depend on the free flow of goods and services.

Carr has confirmed Ottawa is prepared to file challenges through the North American free trade agreement and the World Trade Organization, if necessary.

“We will look at our options, and we certainly would not exclude the possibility,” he said.


Trade experts say while the history of the softwood-lumber wars is long and complicated, they agree that Canada has repeatedly come out on top since the 1980s.

Some note, however, that the victories do not mean Canada came through completely unscathed.

Naomi Christensen, a senior policy analyst at the Canada West Foundation think tank, said that over the years Canada has had considerable success in appealing U.S. actions in front of NAFTA and WTO panels.

“What may actually be more accurate is to say the U.S. has never won,” said Christensen, who noted, for example, that panels have called on the U.S. to lower or lift its duties on Canadian lumber a number of times.

“It’s a little more complex than just a court case because it’s (presented) to trade panels, and so the rulings are typically not just ‘yes-Canada, no-U.S’.”

She noted that less than a decade ago, while the most-recent softwood lumber agreement was in place, the U.S. found some success after filing disputes with the London Court of International Arbitration over how Canada was applying the deal.

Christensen said the court ruled that some provinces were applying the agreement correctly and a couple were not. However, she noted that these rulings came while an agreement was in place.

Peter Clark, a trade strategist involved in Canada-U.S. Free Trade and NAFTA negotiations, said Canada has had a winning record — but it depends where you look.

Clark said Canada has had lots of success with NAFTA challenges.

“They’ve won a lot of them,” he said, adding that it explains why the U.S. lumber industry wants to get rid of the Chapter 19 dispute settlement tool in the agreement.

“They figure it doesn’t work all that well for them, so they would just as soon get rid of it.”

But he says some WTO disputes have had mixed results for Canada.

Colin Robertson, vice-president at the Canadian Global Affairs Institute, said his impression is that Canada won most disputes that came before the WTO and NAFTA.

However, he added that even legal wins won’t solve the decades-long problem — Canada must still negotiate with the U.S. to reach a resolution.

“There is the judicial route, but what counts in terms of softwood lumber are the politics,” said Roberston, a former member of Canada’s NAFTA negotiating team.

“The (legal) outcomes give us moral suasion, but ultimately political solutions, certainly in the case of lumber, are what we have to arrive at.”


Overall, experts say Canada has generally prevailed through four rounds of the softwood lumber dispute with the U.S., even if the Americans saw some less significant success along the way.

For that reason, Carr’s statement rates “a little” baloney.


The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

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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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Germany’s Objections to Investor Protection in CETA and TTIP

Reports from Berlin over the weekend indicated that Germany cannot accept the Investor-State Dispute Settlement (ISDS) provisions in the Canada-E.U. Comprehensive Economic and Trade Agreement (CETA), nor in the U.S.-E.U. Transatlantic Trade and Investment Partnership (TTIP).

The report which created the fuss does seem to be premature as the negotiations have not been completed; there is no final text.  How does a Trade and Investment Partnership work without Investor Protection?  The initial report was at least premature.  See here.

German officials claim to be “stunned” by the press report.  See here.  But the same article confirms Germany’s position that NAFTA-type ISDS among countries with sound legal systems is superfluous.

How serious is the problem?  Will it become an impasse?  This is not the first time Germany has publicly explained its position on ISDS.  See here and here.  But the 11th hour timing is quite troublesome and E.U. officials are reluctant to change what has been agreed.

The implications of rejecting ISDS are drastic and could lead to unravelling.  See my column here.

Germany has said it wants nothing to do with independent arbitral tribunals in either TTIP or CETA passing judgement on German laws.  Both CETA and TTIP are negotiations among equals with well developed legal systems.  Germany considers its courts are good enough.

Negotiations among so many different parties are bound to be difficult – and when so many of the parties are sovereign states, one understands the difficulties involved in herding cats.

The problems will not be over with the initialing of the final text.  The ratification process by all 28 E.U. member states will be a new ball game.

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