October 25, 2005
Lost in the WoodsNYTimes.com Op-Ed
By LAWRENCE HERMAN and GARY HUFBAUER
AS Secretary of State Condoleezza Rice continues her talks in Ottawa
today, she may find that the most acrimonious disagreement between
Canada and the United States is not a question of hard power - issues
like Afghanistan, Iraq and nuclear nonproliferation - but of softwood.
A quarter-century-old dispute over Canadian lumber exports, which
Washington claims are unfairly subsidized, has escalated to the point
where it now threatens broader relations between the two countries.
If it remains unresolved, the softwood war might also spill over
into the December ministerial meeting of the World Trade Organization,
where Washington and Ottawa have long worked together to expand free
trade. What kind of example does it set for the rest of the world if
the United States and Canada - close neighbors, each other's largest
trading partner and crucial allies - cannot resolve their own trade
disputes?
American and Canadian lawyers, lobbyists and negotiators have been
fighting on and off over Canadian lumber exports to the United States
since the 1980's. In 1982, a coalition of 250 American lumber mills
claimed that Canadian provinces were subsidizing lumber exports by
charging set "stumpage fees" - the price forest companies paid when
harvesting standing timber - while American mills were paying open
market prices. While the fight over things like stumpage fees is
complex enough, it got a sharp twist in 2000 when Congress passed an
amendment giving American companies injured by foreign trade the
punitive duties imposed by the United States, which in the case of
Canadian lumber exports now amount to about $5 billion.
Never mind that the right of the United States to impose such duties
is in dispute, or that the W.T.O. declared the Byrd amendment (named
after its creator, Senator Robert C. Byrd) illegal. American and
Canadian officials now face two lumber disputes: the old one about
timber management practices; and the new one about who owns the money
held by the Treasury. Making things uglier are conflicting decisions by
a panel convened under the North American Free Trade Agreement and by
the W.T.O., with the United States claiming that favorable rulings by
the latter trump adverse rulings by the former.
Canadians, including the normally friendly Canadian business
community, are particularly outraged that Washington has rejected the
Nafta panel decision. In Canadian eyes, this refusal by the United
States betrays the central deal that underpinned Nafta in the first
place: Canada allowed unfettered access to its energy resources and an
end to restrictions on American investment in return for a binding
method of settling disputes. As Prime Minister Paul Martin made clear
recently, the dispute is coloring everything from the oil and gas trade
(*Canada is the largest foreign supplier of energy to the United States)
to cooperation in the World Trade Organization, the International
Monetary Fund and World Bank.
If Canada and the United States cannot bring their common heritage
and collective ingenuity to resolve the lumber dispute, little hope
remains for commercial differences in other areas, or in other parts of
the world. With this in mind, we have two suggestions, one to dispose
of the $5 billion pot held by the American Treasury, the other to
bridge the ancient battle over lumber exports.
First, the $5 billion. We recommend that a bilateral trust should
administer the funds for the benefit of the North American industry as
a whole. Representatives of Canadian and American lumber companies, and
the two governments, would manage the trust. Possible projects:
scientific research, pest control, forest fire control and
re-structuring assistance, especially for smaller mills.
Second, we believe that President Bush and Prime Minister Martin
should each appoint a special envoy with the authority to negotiate a
final and durable compromise by a date certain, say June 2006. The idea
is to elevate the issue to the highest level, removing it from the
present negotiating framework where vested interests exercise far too
much influence. We have in mind envoys of the stature of James Baker
from the United States and Derek Burney from Canada, who brokered the
original Canada-United States free trade deal in the 1980's.
These envoys would be charged with specific instructions: agree on
limits on the Canadian share of the American lumber market that would
gradually expand over time; settle the terms for market-based
adjustments to the Canadian stumpage system while making provisions for
the environment; and hammer out the details for managing the $5 billion
pot. As part of the package, all legal actions would be halted.
The two heads of government should commit in advance to backing
whatever agreement their envoys reach within these overall terms. The
grand bargain that was Nafta would be returned to pride of place in our
relations. Not only would this restore confidence in the strength of
the North American partnership, it would strengthen both countries'
efforts to promote free trade worldwide.
Lawrence Herman is a
lawyer in Toronto. Gary Hufbauer is a senior fellow with the Institute
for International Economics in Washington.
*Why do so few Americans know this fact? I think it's because they buy wholesale the oft-repeated statement that Middle-eastern countries supply most of the USA's energy. This is patently untrue. (Just ask the ever-increasingly wealthy province of Alberta, Canada--home to vast petrol reserves.) For the record, more than half of the United State's energy supplies come from Canada and Mexico. Americans are often chastised for their lack of knowledge of world history, but could they at least get the present tense right?--Cyn