TEARING DOWN THE (DRY) WALLS
TRADE ‘DUMPING’ IS TRUE FREE TRADE AND IT’S TIME TO ALLOW IT
President Donald Trump’s plan to retool the 1994 North-American Free Trade Agreement might plunge Canada into a new era of friction with its biggest trade partner — or it may bring great opportunity. It all depends on what trade policies Trump actually tries to impose. But it also depends on the trade objectives Canada adopts in response.
Big headline-grabbing U.S. trade actions may include tariffs on imports and threats of a trade war with China. But down in the weeds, Canada could adopt more modest strategies in its dealings with the U. S., ones that could win points with China, the United Kingdom and other self-proclaimed global champions of free trade.
Here’s a small start- up counter move: If Prime Minister Justin Trudeau’s government intends to live up to Canada’s claim to be a free trade nation, its first objective should include abandoning the country’s centuryold anti-dumping regime.
Canada might even be able to enlist one of America’s most powerful corporate families — the Koch brothers — in a battle against anti-dumping, one of the great protectionist rackets in international trade.
Anti-dumping allows corporations in one country to claim that foreign corporations are “dumping” goods at below normal prices.
Evidence that anti-dumping theory is economic hokum was on full display this past week in a final Canadian International Trade Tribunal ( CITT) report on Canada’s anti-dumping prosecution of U. S. drywall exporters.
One of those exporters, Georgia Pacific LLC, is owned by the Koch brothers, considered by some to have great influence over Trump appointees, if not Trump himself.
Trump’s trade minister, Commerce Secretary Wilbur Ross, may have opened up an opportunity for Canada on Wednesday when he said that “all aspects of NAFTA will be on the table,” reportedly including the infamous dispute settlement panels that are set up to review anti- dumping decisions.
That complicates matters. First, Georgia-Pacific is also a producer of softwood lumber. Second, the dispute settlement system has served Canada well in the softwood lumber cases brought by the U.S. and now vulnerable to review under Trump.
Canada has a long history with anti-dumping, pro and con, dating back to 1904. That’s when Canada is widely credited with having been the first nation to impose an antidumping law. The muddled experience with the drywall case could serve as reason for Canada to make it into the history books again: We invented anti-dumping laws, so let’s now lead the fight to remove them from trade deals.
In the drywall case, initiated last April, provisional anti-dumping duties between 105 and 276 per cent were imposed on all 48- inch construction drywall imported into Western Canada from the U.S.
The impact of the duties — determined by the Canada Border Services Agency — was felt across the West, raising prices for contractors, homebuilders and the people of fire- ravaged Fort McMurray, Alta. At Lowe’s in Calgary, the posted price for drywall this past week was $ 13 a sheet, compared with just $8 in Toronto.
In this week’s final review of the drywall dumping case, however, the CITT explained why it slashed the duties to 43 per cent and, to a large degree, reversed the original findings that U. S. drywall makers were inflicting grave harm on Western Canada’s drywall manufacturing industry.
More i mportantly, the CITT accepted much of the expert trade and economic evidence that suggested the dumping duties protected Western Canadian drywall manufacturer to the detriment of consumers, Canadian business and the Canadian economy.
A lawyer for one of the U.S. drywall makers said his firm might appeal to Canadian courts or a NAFTA dispute panel to reverse the 43 per cent duties. It would be ironic if a U. S. firm tried to use the appeal mechanisms that the Trump administration is trying to remove.
The drywall case, formally known as the gypsum board dumping investigation, is a textbook illustration of the inherent and insurmountable economic problems buried in dumping theory. In practice, dumping investigations are black boxes of confidential data surrounded by incoherent arbitrary conclusions.
But before diving into some of the details in the drywall saga, a digression is necessary, back to 1904 when Canada first imposed antidumping legislation, soon followed by other countries. Today, all international agreements and all members of the World Trade Organization maintain anti- dumping regimes.
“Canada is the ancestral home of anti- dumping law,” Rodney Ludema, professor of economics at Georgetown University, said in a recent contribution to a World Bank book on international antidumping regimes.
Ludema also suggested Canada had increased its anti- dumping efforts in the wake of the 2008 economic crisis, including a “surge” in cases against China that “seems to indicate a strong protectionist tendency.”
Paradoxically, Canada has also occasionally championed the removal of anti-dumping laws, something most trade and economic experts support. They see anti-dumping as antithetical to free trade.
Toronto lawyer Cal Goldman, Canada’s former compe- tition commissioner and now a partner at Goodmans LLP in Toronto, said anti- dumping is incompatible with free trade.
“The principle was, clearly, that if you drop trade barriers (as Canada did with the U. S. under the 1988 Free Trade Agreement), there is no place — barring specific exceptions — for any dumping regime,” he said. “The barriers are down. We want an open market.”
The continued existence of anti- dumping measures between Canada and the U. S. is “one of the failures of NAFTA,” said Riyaz Dattu, a veteran international trade lawyer at Osler, Hoskin & Harcourt LLP in Toronto. “It’s anomalous and bizarre,” he said. “It does not make sense economically, and from a perspective of free trade, to have dumping laws between Canada and the United States, or for that matter between Mexico and Canada.”
Canada initially wanted to remove anti- dumping from the Canada-U. S-Mexico trade pact, but abandoned the idea as a compromise to assure a general agreement was reached. Canada has also tried, in other trade deals, to reduce international antidumping practices.
For example, when Liberal Trade Minister Art Eggleton signed a free trade deal with Chile in 1996, the government hailed the agreement’s removal of anti-dumping duties. “This will further guarantee barrier- free access for Canadian exports to Chile and contribute to making further progress in reforming anti- dumping law internationally,” the government said.
Not much progress has taken place since then, and Canada’s record as a champion of barrier-free trade reform has been mixed.
More than 30 anti-dumping measures are currently in force in Canada, protecting local industry from a host of allegedly unfair pricing practices. Most are supposed to protect Canada from lowercost metal parts and other industrial products manufactured in developing nations: carbon steel welded pipe from China; copper tube from Brazil, Greece and other countries; drill pipes, casings and tubing (known as oil country tubular goods) from India, Indonesia, Thailand and Vietnam; steel plate from Romania.
Canada’s dumping watchdogs never sleep. On Wednesday, the Canada Border Servi- ces Agency delivered a report confirming a new set of duties of up to 109 per cent on certain concrete reinforcing bars imported from Belarus, Chinese Taipei, Hong Kong, Japan, Portugal and Spain.
Dumping duties tend to exist for a minimum of five years and then drag on for decades. .
Canadian consumers are also protected from lowercost refined sugar from Eur- ope and the U. S., thanks to anti- dumping measures in force since 1995 and renewed at 180 er cent by the Canadian trade tribunal in 2015.
The new Canada- European Union free trade deal might have ended the sugar duties that protect Canada’s two sugar refiners — Lantic Inc. in the West and Redpath Sugar Ltd. in the East — from foreign competition. But the agreement embeds antidumping as a legal tool.
By maintaining such anti- dumping provisions, the EU trade deal — like NAFTA — fails to install free trade.
The refined sugar antidumping measure is comparable to the drywall measure. Both aim to protect a dominant regional player from foreign competition.
Lantic supplies more than 90 per cent of the demand for refined sugar products to Western Canada. In drywall, CertainTeed Gypsum Canada Inc. is the sole domestic producer in Western Canada. Not surprisingly, both are fans of Canada’s anti-dumping rules.
CertainTeed l ast April claimed that U. S. gypsum firms were dumping drywall into Western Canada, where the wholly owned subsidiary of BPB PLC, a British gypsum giant, maintains plants in Vancouver, Calgary and Winnipeg.
The claim was that major U.S. companies — Continental Building Products Inc. of Virginia, Georgia-Pacific Gypsum LLC of Georgia and USG Corp. in Chicago — dumped drywall into Western Canada between 2013 and into 2016.
“There is,” CertainTeed said in its claim, “overwhelming evidence demonstrating that the Subject Goods are being dumped into the Western Canadian market at very significant and injurious margins of dumping.”
Such evidence is, however, overwhelmingly absent from CertainTeed’s claim or the public record.
At public hearings, corporate, legal and expert witnesses appear for days to engage in shadowy discussions of details that cannot be revealed and fundamental disagreements that are only discussed “in camera.”
A typical drywall proceedi ng exchange took place between a lawyer and Tim Power, an executive at U. S. drywall maker Continental Building Products.
Lawyer: “What comments in public would you like to make to the Tribunal about hypothesis?”
Power: “I can say it is categorically false ... I can go in more detail in camera, but it is absolutely not true.”
A few morsels of price and quantity data make it into the public record, but nothing coherent.
The drywall conclusions released this past week by the Canadian trade tribunal became what all dumping decisions must become: politicized exercises in confidential central planning carried out by a tribunal of bureaucrats enforcing the tricky and often incoherent language of dumping law and regulations.
The most important factor in the cross- border drywall market appears to have been the fall of the Canadian dollar. The CertainTeed case rested in large part on its belief that as the Canadian dollar lost value, U. S. manufacturers were selling drywall into Canada at below cost to offset a 30-per-cent currency loss.
But Duane Hughes, a vicepresident at Georgia- Pacific ( owned by the Koch brothers), said its drywall is “still profitable at today’s ( currency) level. So if it stayed at 75 cents on the dollar forever and things are as they are today, then we would continue to ship” into Western Canada.
The drywall case turned against CertainTeed when drywall prices became political. Imposing high dumping duties of up to 276 per cent immediately impacted a range of industries.
As with all markets undergoing economic change, there were winners and losers. The case pitted drywall users against drywall users, the boilermakers union against competition experts.
Specialized re-manufacturers of drywall products with long-term contracts claimed harm from low-cost U. S. imports. Canada’s homebuilders complained about the burden of rising drywall prices in the West’s already slow housing market. Fire- ravaged Fort McMurray became a victim of rising drywall costs just as it was beginning to rebuild.
With oil- shocked Albertans and Fort McMurray in the background, federal Finance Minister Bill Morneau asked the trade tribunal to review the 276-per-cent provisional dumping duties to determine whether they are “contrary to Canada’s economic, trade or commercial interests.”
The question from Morneau was whether the triple-digit duties would “have the effect of substantially reducing competition in those markets or causing significant harm to consumers of those goods or to businesses that use them.”
The intervention was politically motivated, but the effect was a welcome direct hit at the fundamental problem with anti-dumping measures and their protectionist foundations: they hurt consumers and the general economy.
In response, the trade tribunal — after juggling all its confidential data, parsing the language of scores of expert witnesses, and manipulating the language of trade and competition law — wiped out the 276- per- cent duties in favour of a 43-per-cent duty subject to certain restrictive conditions and only after a large volume — 229 million square feet — of U.S. imports entering Canada. The high provisional tariffs would be rebated to the U.S. firms.
The drywall dumping case was not dismissed. It essentially left in place a duty that appears to be designed to offset the decline in the value of the Canadian dollar. That’s no model for a free- trading nation with a floating exchange rate.
Still, the decision is a small victory for the underlying principles of free trade and against the protectionism of anti- dumping, especially if the U.S. firms appeal and the case is overthrown entirely.
More broadly, the government could adopt a policy aimed at overturning antidumping internationally. It is too late for the agreement with the EU, but as Canada begins reworking NAFTA with Trump, free trade talks with China and the United Kingdom and other nations, a powerful opening bid would be to offer to abandon Canada’s historic anti- dumping measures.
THE MUDDLED EXPERIENCE WITH THE DRYWALL CASE COULD SERVE AS REASON FOR CANADA TO MAKE IT INTO THE HISTORY BOOKS AGAIN: WE INVENTED ANTI-DUMPING LAWS, SO LET’S NOW LEAD THE FIGHT TO REMOVE THEM FROM TRADE DEALS. — TERENCE CORCORAN DUMPING DUTIES TEND TO EXIST FOR A MINIMUM OF FIVE YEARS.