Free trade's best friend

The hidden blocks to trade

MARC CLARK September 16 1985
Free trade's best friend

The hidden blocks to trade

MARC CLARK September 16 1985

The hidden blocks to trade

In Geneva on April 12,1979, representatives of 99 nations ended six years of painstaking negotiation begun in Tokyo by approving a historic agreement to cut tariffs on the goods trading between countries by an average of 33 per cent over the next eight years. The deal was the seventh concluded under the General Agreement on Tariffs and Trade (GATT), the international body set up in 1948 to

limit trade barriers. But critics now charge that GATT’s success in eroding tariffs has simply encouraged use of more subtle roadblocks to trade, known collectively as nontariff barriers (NTBs). In fact, nontariff barriers have become the weapon of choice for most GATT signatories, allowing them to shield domestic industries from foreign rivals while following the letter—if not the spirit—of GATT.

Barriers: Trade officials say that nontariff barriers will be central to the next round of GATT talks, scheduled to begin late this year or early in 1986. They will also lie at the heart of any free trade talks with the United States. By 1987, because of the Tokyo round, 80 per cent of Canadian industrial exports to the United States will enter free of formal duties. Declared Alberta Premier Peter Lougheed:“Our concern is not tariffs. It’s the other barriers that can open or close on the whim of Congress.”

Harassment: The number and variety of NTBs continue to grow. Some barriers masquerade as technical or health regulations or as labelling requirements. Occasionally governments resort to outright harassment. In 1983, when Ottawa was pressing Japanese automakers to limit their imports to

Canada, Canadian customs officials kept thousands of Japanese cars languishing on Vancouver docks by insisting on inspections of each vehicle.

For Canadian producers, the sting of U.S. NTBs—and the threat of more to come—has inspired much of the current free trade fervor. Last May, Western hog farmers suddenly lost 25 per cent of their market when four northern states, responding to pleas from hard-pressed U.S. pork producers, banned imports of Canadian hogs. The states claimed that the Canadian animals may have been treated with chloramphenicol, an antibiotic approved by U.S. officials for use on people but not on hogs.

Canada’s greatest nontariff threat, however, comes from the Washingtonbased International Trade Commission (ITC), a federal agency that investigates charges of unfair competition. If the six government appointees who comprise the commission accept a complaint as valid, the ITC recommends to the department of commerce that a “countervailing duty” be applied. In the past two years alone U.S. firms have filed complaints against Canadian producers of such diverse commodities as sugar, fish, hogs, raspberries and steel.

The number of U.S. complaints filed against foreign imports has been rising. In 1979 the ITC handled 62 cases; in 1984 it investigated 186. In 1982 a flurry of complaints by U.S. steelmakers—many of them aimed at Canadian competitors —drove the total to a record 232 cases. “U.S. industry has learned to fine tune these tools by dragging their competitors into lengthy and expensive defences,” said John Armstrong, manager of tariff and trade affairs for Dofasco Inc. of Hamilton, Canada’s second-largest steel manufacturer.

Frivolous: That potential for harassment has convinced many Canadian trade experts that any Canada-U.S. trade pact would have to contain some mechanism to limit frivolous complaints. Almost all of the American complaints allege that Canadian producers benefit from some form of government subsidy, ranging from farm price stabilization programs to transportation subsidies arising from government payments to railroads.

But while Canadian officials dispute the significance of the subsidies, they freely acknowledge that Canada also uses NTBs. One common barrier is legislation, both federal and provincial, that gives preference to Canadian or local bidders on government contracts. GATT officials in Geneva are currently reviewing two complaints against Canada. Last January the European Community formàlly charged provincial liquor boards with discrimination against imported products because of excessive markups of foreign wines. South Africa has also complained of discrimination against Krugerrand gold coins because, since 1983, Ontario has exempted the Canadian Maple Leaf, the Krugerrand’s major competitor, from a seven-percent provincial sales tax. For officials contemplating trade talks with the United States and, through GATT, with the world at large, convincing legislators to drop such subtle defences of Canadian industry will be no easy task.

MARC CLARK

with

PETER LEWIS

in

Brussels