Business

THE POLITICS OF TRADE

Are disputes becoming a way of life?

JOHN GEDDES March 22 1999
Business

THE POLITICS OF TRADE

Are disputes becoming a way of life?

JOHN GEDDES March 22 1999

THE POLITICS OF TRADE

Business

SPECIAL REPORT

Are disputes becoming a way of life?

JOHN GEDDES

Liberal MP Stan Keyes can’t claim to be a big player in Canadian trade policy. But to his dismay, trade policy plays big these days in his Hamilton West riding. In Ontario’s steel city, anxiety is mounting over the prospect of a trade war with the United States. Keyes hears about the fear almost daily from smelter workers and steel company executives. The source of their unease: Washington’s hints that imported Canadian steel might be one target of retaliation if Ottawa refuses to back down from its proposed law to protect Canadian magazines from U.S. split-run periodicals. That law is championed by Heritage Minister Sheila Copps, who also happens to be MP for the next-door Hamilton East riding. So Keyes finds himself squaring off against his more celebrated neighbour—not to mention breaking ranks with his own party—by defending his home town’s interests. “There must be a way to protect culture without raising the ire of the Americans,” he argues. “The more important issue here is protecting jobs.”

When talk about trade spats spills over from the negotiating tables of Geneva and Washington to the kitchen tables of Hamilton, something has gone wrong. A series of particularly rancorous disputes has raised troubling questions about the capacity of the World Trade Organization, and perhaps the North American Free Trade Agreement, to keep noisy squabbles from escalating into destructive trade wars. It is all happening as a soaring U.S. trade deficit, and a fragile global economy, have major trading nations on edge. The quarrel over magazines, which raised fears of heavy U.S. duties on Canadian steel—or lumber, or plastics, or wool suits—eased significantly last week, but it is not an isolated case. An even bigger battle over, of all things, bananas, has poisoned trade relations between the Americans and Europeans (page 26). The worst outcome, according to veteran Ottawa-based trade consultant Peter Clark, would be a weakening of the WTO and NAFTA regimes that Canada counts on to level the playing field with its much larger trading partners. ‘We need rules to make

sure this is a game of right and wrong, not of big and little,” Clark says.

In both the banana and the magazine clashes, the United States is under fire for relying more on being big than being right. But the accusations of bullying are hardly clear-cut. In the bananas case, the United States won at the WTO, fair and square. The European Union was ordered to stop favouring bananas imported from former colonies over ones from U.S. companies operating in Latin America. It was European dithering about how to comply that exhausted Washington’s patience. On March 3, the United States imposed heavy duties on a wide range of European imports, from British sweaters to Italian cheese—a response many observers have criticized as too severe.

In the magazine conflict with Canada, the United States also initially won its case at the dispute-settlement table. In 1997, a WTO panel struck down Ottawa’s policies banning socalled split-runs—editions of U.S. magazines that generally contain little or no Canadian editorial content, but from which the U.S. advertisements have been stripped and replaced by Canadian ads. Ottawa complied with the WTO by scrapping the offending policies. But Copps unveiled new legislation, Bill C-55, last fall to accomplish the same goal. This time, instead of targeting the splitrun magazines directly, her proposed law would make it illegal to sell advertising space and other services in such publications. That twist is crucial: while Canada is obliged by trade treaties to have an open market for imported magazines as goods, no international pact compels Ottawa to let foreigners compete freely in selling advertising services.

U.S. trade negotiators scoff at that distinction as a dodge to avoid honouring the WTO ruling. They see little difference between Canada’s actions and the EU’s reluctance to comply on bananas. Defenders of the Canadian position, though, say the two cases are only superficially similar. Gordon Ritchie, a former senior Canadian trade negotiator and now a trade consultant, says Canada removed the offending measures and introduced an entirely new law. It is up to the

United States to seek another panel decision before retaliating, he says. Instead, Washington threatened to publish a list of Canadian imports that might have duties slapped on them after a 30day consultation period. ‘This is unilateral aggression, unless and until it is sanctioned by the WTO or NAFTA,” Ritchie fumes. “They are getting very, very nasty indeed.”

Canada’s hopes for avoiding any more nastiness got a boost at a key meeting on the magazine issue in Washington last Friday. The session, involving the second-highest-ranking U.S. trade negotiator and the top bureaucrats from Canada’s Trade and Heritage departments, ended with both sides suggesting a deal was within reach. “If we continue on the path we are on today, this law as presently conceived will not become the law of the land,” said Richard Fisher, the deputy U.S. trade representative. It is clear some aspects of C-55 will be altered, but neither side was disclosing any precise changes to the bill that might satisfy Washington, yet leave Canadian cultural policy intact. Still, enough common ground was apparently found for the American side to withdraw the immediate threat of publishing a retaliation list. Canadian negotiators have stressed to the Americans that the legislation is not being rushed into law. It could be delayed and amended when it goes be fore the Senate. And the law will not come into force until a special decision is made by the cabinet.

In fact, the tension over magazines has not seemed to put much strain on the wider Canada-U.S. trade relationship. International Trade Minister Sergio Marchi claims that “behind the headlines, the American-Canadian relationship has never been as good.” And senior federal trade officials point to strategic trade files on which Ottawa and Washington are, in fact, acting as close allies. In what is shaping up as a major battle over Europe’s restrictions on imports of North

American beef from cattle raised on certain hormones, the United States and Canada are fighting on the same side. And as the U.S. government grapples with domestic demands to limit surging steel imports, Canada’s steel industry is happy that it is not being lumped in with offshore producers who may face new restrictions.

Canadian trade mandarins generally give the U.S. government credit for fending off growing demands that it limit imports—especially after its trade deficit ballooned to a record $248 billion (U.S.) last year from $198 billion in 1997. “If you look at some of the extreme protectionist pressures the Americans face, the administration has been acting responsibly,” said one admiring senior Canadian trade bureaucrat.

Canada’s success rate at the Geneva-based WTO may also be better than it has lately appeared. Leaked reports of a WTO panel interim ruling on federal support for aerospace industries had prompted economic nationalists to claim that Canada’s entire industrial policy was being put at risk. But with the release of the final WTO ruling in the case last Friday, Ottawa was claiming that those earlier, dire interpretations of the panel’s findings had distorted what was really a Canadian victory. In the dispute, Canada attacked Brazilian export subsidies for Embraer, Brazil’s manufacturer of regional passenger jets. Brazil, in turn, challenged Canada’s support for Montreal-based regional-aircraft maker Bombardier Inc. In the end, Brazil’s major subsidy scheme was found in violation of WTO rules, while the Canadian government insisted only minor parts of Canada’s aerospace and export supports would have to be revised to comply. In short, Brazil, was “knocked out” while Canada “got nicked,” Marchi boasted to Maclean’s.

Canada will be back trading punches in the WTO dispute-settlement ring many times in the coming years. Of 24 dispute panels listed as active by the WTO last week, Canada was involved in eight—a remarkably high proportion, given that 134 countries belong to the WTO. Among the key disputes: the United States and New Zealand allege that Canada unfairly subsidizes dairy exports, while Japan claims that Canada’s import duties on Japanese cars violate WTO rules.

And all is not quiet on the NAFTA front. Among other issues, Ottawa is bracing for its old battle with Washington on softwood lumber to resume. The controversial 1996 agreement that limited Canadian lumber exports to the United States runs out in 2001. Marchi is already discussing strategy with the provinces and forestry companies: should Canada settle for a new quota deal, or fight for the wide-open access NAFTA theoretically guarantees? Trade pacts, it seems, can only be counted on up to a point—getting the best deal in global commerce still requires shrewd strategies and hardball bargaining. □