Critics of the softwood lumber deal need to give NAFTA a closer reading
NEIL REYNOLDS
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OTTAWA -- Q: Now that we have a softwood lumber agreement, can you tell me why we let the United States get away with its flagrant violations of the North American free-trade agreement?
A: Which flagrant violations?
Q: Well, I just finished reading yet another column in the media about softwood, once again arguing that NAFTA itself had declared the American duties on our lumber exports to be illegal.
A: Nonsense.
Q: It said this new agreement was a bleak day for free trade.
A: Balderdash.
Q: And a bleak day for the rule of law, too.
A: Hogwash.
Q: It appears you disagree with that contention.
A: With all due respect. In fact, NAFTA doesn't operate courts of any kind. NAFTA panels compare actions against texts and express opinions. They may find that one party to a dispute has done something inconsistent with the free-trade agreement. They don't produce verdicts. They have no such power.
Q: But they should have such power, right? If they did, we would have won this trade war hands down.
A: You can't fault a duck because it doesn't quack in English. NAFTA is a great trade partnership. But you have to accept it for what it is, not what you want it to be in the midst of a particular dispute. Softwood lumber was never part of the free-trade agreement anyway. By mutual agreement, it was legitimately excluded. For our part, Canada excluded cultural industries. For their part, the Americans excluded lumber.
Q: Your point is -- what?
A: What the Americans did during the softwood lumber dispute is precisely what Canada might well do tomorrow in a cultural industries dispute. In that case, we would take advantage of the NAFTA text, too.
Q: I think you're going to tell me something -- whether I want to know it or not.
A: Well, it's important. Under NAFTA rules, when anyone alleges subsidies, the domestic trade law of the importing country automatically applies. So when the American lumber industry alleged Canadian subsidies, it was American trade law that applied. If a group of Canadians had made the same complaint, U.S. trade law would still have applied.
Q: But the NAFTA panels brought down a bunch of decisions that favoured Canada.
A: Yes, they did. But none of them was a verdict. The panels write opinions and send them back to the domestic agency that allegedly erred. In the case of softwood lumber, this was the U.S. Department of Commerce.
Q: But the panels do impose binding decisions, don't they?
A: At the end of a long adjudication process, they can issue a final decision -- which means that they won't change their minds. But final isn't the same thing as binding. Remember that the relevant issue is always the trade law of the importing country. If one law fails the NAFTA test, you can always write another that might not. Let me quote from a succinct legal opinion written by Richard Braudo and Michael Trebilcock, both from the law faculty at the University of Toronto: "Final NAFTA decisions cannot provide permanent solutions because the importing country is free to change its own domestic laws as often as it wants, ad infinitum." In other words, confronted with a final decision, the importing country can amend its laws -- and start the process all over again.
Q: How convenient. You carry this legal opinion in your wallet?
A: I never leave home without it.
Q: Isn't all this proof that the NAFTA panels don't work -- that the whole process is compromised?
A: Not at all. The Canadian government made a fundamental error, years ago, in choosing to wage war rather than to negotiate peace. NAFTA's dispute-settlement process works for everything that's part of free trade. It couldn't work for softwood lumber, which wasn't -- isn't -- a part of it. We tried to engineer de facto free trade in lumber through trade law. Bad mistake. It was obvious from the start that only a negotiated agreement could end the dispute.
Q: And you think this agreement is good for Canada? Why?
A: Aside from paying a billion dollars for our own miscalculations, it's an excellent agreement. It's not free trade but it moves us closer. It confirms the free-trade status of the Maritime provinces. It guarantees us one-third of the U.S. market. And it goes well beyond that, too -- we get free, unrestricted access to the U.S. market whenever lumber prices reach $355 (U.S.) for 1,000 board feet. Prices are below this level now but they have exceeded it often in the past few years. In strong markets, we'll be able to sell the Americans every tree we can cut.
Q: Wow! We would make a real killing then, wouldn't we?
A: Yes, but what kind? Think cod.
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