Canadas Sovereignty and Its Dependence on US Markets - Essay Example

CANADA'S DEPENDENCE ON U.S. MARKET AND CANADIAN POLITICAL SOVEREIGNTY Canada's sovereignty and itsdependence on US markets Introduction One of the important trade disputes between the US and the Canadian government is the softwood lumber trade. The dispute started when US logging companies lodged complaints against Canada on subsidized stumpage rates. As the trade progressed the controversies also increased. We analyze Canada's dependence on US market and the political sovereignty of the Canada. We also look at the consequences Canada might face in the near future if it disagrees with the US. The two sides arguments is also reviewed. We also review the impacts of the US trade restrictions. Since it is one of the longest trade disputes both governments know the issues to be discussed clearly. Negotiations between the two governments and trade unions should continue because it might result in an off court settlement. CANADA'S DEPENDENCE ON US MARKET The dispute started in the year 1982 when some of the US logging companies lodged complaint against Canadian industries on subsidization of Canadian stumpage rates on the import of softwood lumber from Canada. Department of Commerce (DOC) investigated the case. For convenience the four lumber litigations are listed as follows: Lumber I [1993] The DOC issued a decision that stumpage rate was not a subsidy. Lumber II [1986] DOC issued a decision that provincial stumpage was a subsidy, but a Canada-US MOU silenced the issue under which Canada imposed a 15% tax on exports to US (Howard, 2000). Lumber III [1992] The DOC found provincial stumpage and log restraints were subsidies. Chapter 19 panel reversed the decision. The panel decision was upheld by ECC (Extraordinary Challenging Committee). Lumber IV [April 2, 2002] The DOC found Canadian stumpage rates were subsidized and softwood lumber was being dumped in US. The decisions are now pending on Chapter 19 panels and WTO. Till now Canada has filed seven appeals against the duties imposed on softwood lumber, three before NAFTA (North American Free Trade Agreement) and four before WTO (World Trade Organization). According to the General Agreement on Trade and Tariffs (GATT) and WTO, governments have in general agreed to lower trade restrictions against each other. But there are number of exceptions in WTO which allow trade restrictions to continue including: Anti-dumping duties to offset countries/companies selling unfairly at a low Price. Countervailing duties to offset government subsidies Emergency trade restrictions designed to "safeguard" domestic industries. In May 1992 DOC ruled that both Canadian stumpages and log export restraints (LER) in British Columbia1 represented countervailable subsidies and set the countervailing duty (CVD) at 6.51% i.e., 2.91% for stumpage and 3.6% for LER (Hoberg, Howe, p.4). In September 1993 DOC ruled again that both stumpage rates and LER conferred subsidies and increased CVD to 11.54% based on adjustments on certain technical calculations. Both the governments signed the Softwood Lumber Agreement (SLA) that came into effect from April 1, 1996 to March 31, 2001 (Ragosta and Clark, 2000). According to this agreement an export fee of $50 per thousand board feet (MBF) on softwood lumber exports in excess of 14.7 billion board feet (BBF), $100/MBF on exports in excess of 15.35 BBF (Howard, 2000). It seemed all right with the settlement but behind the scene both the governments were not satisfied. After the expiration of SLA Bush government imposed 12.58% anti-dumping duty (ADD) in October 2001 (Ying, Baek, 2002). Canadian government decided to take the legal and political battle with the US. The US side is represented by Coalition for Fair Canadian Lumber Imports (CFCLI). In Canada two associations, British Columbia Lumber Trade Council (BCLTC) and Free Trade Lumber Council (FTLC) decided to fight the legal battle with the US. Both sides defend their arguments. Canada alleges unfair methods were being used by United States by making the decisions in their favor. They allege that the export duty and ADD were too high and the existence of Canadian industries was becoming difficult in the US. On the other hand US says they are protecting domestic interests. The US said they would not oblige to Canadian interests. CANADIAN POLITICAL SOVEREIGNTY Political sovereignty means protecting the country's political and diplomatic rights by taking appropriate decisions in the country's best interests. The softwood lumber dispute between Canada and the US is a test to the Canadian sovereignty. From decades Canadian industries were dependent on the US market. Most of the Canada's products were exported to the US markets. The US also depends on Canada for oil and natural gas. Canadian industries were very much dependent on the US markets in case of export of softwood lumber. This reliance on US markets of Canadian industries is becoming a biggest threat to Canadian sovereignty. The reason for the above condition is Canada is heavily dependent on US. Thus Canada is becoming vulnerable to trade actions taken by the US industry. Due to this dependency US made the laws that will result in their favor. To solve export of softwood lumber dispute both the countries formed binational panels. In this panel half of them represents the US and the remaining half represents Canada. There would be no creation or application of new laws, but apply the importing country's law. Here the importing country is the US. The trade actions taken by the US predated Canada-US Free Trade Agreement (CUSTA). Under the influence of these actions by the US softwood lumber industry and US federal government the price on crown timber was decided. Though the decision of this dispute went in favor of Canada, it was overpowered by legislative changes in the US. As per the agreement between both countries the subsidy laws of importing country is applicable for the free trade agreements. The potential institutionalization of the dispute settlement process is limited by the terms of FTA. Canadian sovereignty has been not challenged because of the transfer of authority to supranational institutions, but precisely because supranational institutions were not strong enough (Hoberg, Howe, p.17). Both countries had their own opinions and arguments on the disputed issue. Canada's point of view is that improper duties and ADD on its exports especially in case of softwood lumber is not justifiable. Since this issue is becoming a challenge to their sovereignty Canada is willing to fight the legal battle with the US. The softwood lumber dispute has been brought in front of international tribunals like NAFTA and WTO where the case is still pending. The final outcome of this case is eagerly awaited. REASONS SUPPORTING THE THESIS 1. The two decades long dispute on softwood lumber case should be discussed because people from both the countries will be affected from the final result. 2. The judgments given by different panels and committees could be useful if cases like softwood lumber case arise. They could be taken as reference and could be analyzed and studied. 3. This paper presents how bilateral relations would be affected due to some complications in trade disputes. The US government has its own points to defend itself. By importing the softwood lumber at low price the US is losing the ground to Canada. Thus it is inviting a direct competitive threat from an external body. The local companies were finding it difficult to hold their place because of stiff competition from the Canadian companies. The final result is the increase of unemployment. To avoid this the US government violating the agreed international trade laws. References Fred McMahon. (2005). The Problem With Sovereignty. Fraser Forum Special Edition (March). Vancouver: The Fraser Institute. George Hoberg, Paul Howe. (1999). Law, Knowledge, and National Interests in Trade Disputes: The Softwood Lumber Case. : University of British Columbia. Howard, J.L. (2000). US timber production, trade, consumption, and price statistics. Retrieved November 22, 2005 http://www.fs.fed.us/ Lindsey, B., Groombridge M.A., Loungani P. (2000). The Economic Impact of Trade Protection of the Softwood Lumber Industry. Washington, DC: CATO. Uhler, R. (1991). Canada-US Trade in Forest Products. Vancouver, BC: British Columbia Press. Worden, V.L., (2000). NLBMDA determined to defeat lumber trade restraints. Retrieved November 22, 2005 http://fash.lakeadu.ca/mshannon/softwood2.htm Patrick Macrory, (2002). NAFTA Chapter 19. Retrieved November 23, 2005 http://www.worldtradelaw.net/articles/macrorychapter19.pdf Michael Weinstein, A., (2005). Economic Brief: U.S.-Canada Softwood Lumber Dispute. Retrieved November 22, 2005 http://www.pinr.com/report.phpac=view_report&report_id=321&language_id=1 Read More