Canada to chal­lenge U.S. softwood tar­iffs

The Globe and Mail (Prairie Edition) - - FRONT PAGE - BRENT JANG VAN­COU­VER ADRIAN MOR­ROW WASHINGTON GREG KEENAN TORONTO

Ot­tawa turns to Chap­ter 19, a key stick­ing point in NAFTA talks, to resolve bi­lat­eral is­sue as next set of trade ne­go­ti­a­tions set to be­gin

Canada is tak­ing its lumber fight against the United States to one of the most con­tentious el­e­ments of NAFTA – Chap­ter 19, which sets up trade pan­els to set­tle dis­putes. Ot­tawa filed its re­quest on Tues- day for a bi­na­tional panel un­der the North Amer­i­can free-trade agree­ment to strike down the United States’s puni­tive tar­iffs on Cana­dian softwood. The move comes as Canada takes an in­creas­ingly hard­ball ap­proach to NAFTA rene­go­ti­a­tions and just one day be­fore talks re­sume in Mex­ico City. Chap­ter 19 is one of the key stick­ing points in NAFTA talks: The Trump ad­min­is­tra­tion wants to abol­ish the pan­els while Canada has vowed never to give them up. Ot­tawa is keen to keep Chap­ter 19 – and in­voke the panel in the cur­rent softwood dis­pute – be­cause Canada has pre­vi­ously emerged vic­to­ri­ous when ap­peal­ing its case through NAFTA in the long-run­ning lumber bat­tle. “We are en­clos­ing a Re­quest for Panel Re­view pur­suant to Rule 34 of the NAFTA Rules of Pro­ce­dure for Ar­ti­cle 1904 Bi­na­tional Panel Re­views,” ac­cord­ing to the let­ter sub­mit­ted on Tues­day by the Cana­dian gov­ern­ment to Paul Morris, U.S. Sec­re­tary of the U.S. sec­tion of the NAFTA Sec­re­tar­iat. Prime Min­is­ter Justin Trudeau’s Lib­eral gov­ern­ment has been hop­ing to keep the lumber is­sue sep­a­rate from NAFTA talks, but the Trump ad­min­is­tra­tion has said Canada won’t be able to keep the two is­sues apart so eas­ily.

I would cer­tainly pre­fer them to come to their senses and make a sen­si­ble deal. In any ne­go­ti­a­tion, if you have one party that is not in fact pre­pared to walk away over what­ever are the thresh­old is­sues, that party is go­ing to lose. Wil­bur Ross U.S. Com­merce Sec­re­tary

Ot­tawa plans, at least for now, to give no ground on the White House’s core pro­tec­tion­ist de­mands in hopes that mount­ing pres­sure from the U.S. busi­ness com­mu­nity will cause the Trump ad­min­is­tra­tion to blink. In Canada’s view, U.S. de­mands in four key ar­eas of NAFTA are non­starters – dis­pute res­o­lu­tion, in­clud­ing Chap­ters 11, 19 and 20; a 50-per­cent U.S. con­tent re­quire­ment on all ve­hi­cles made in Canada and Mex­ico; se­vere lim­its to the amount of Amer­i­can gov­ern­ment con­tracts Cana­dian and Mex­i­can firms can bid on; and a sun­set clause that would force the rene­go­ti­a­tion of NAFTA every five years. Ot­tawa, how­ever, will try to reach agree­ment on less con­tentious ar­eas such as cut­ting red tape at the bor­der and ex­pand­ing the deal to cover dig­i­tal com­merce. Sources with knowl­edge of the Cana­dian think­ing say the Trudeau gov­ern­ment would rather not reach a deal than agree to a bad one, and is brac­ing for the pos­si­bil­ity NAFTA talks will un­ravel. U.S. Com­merce Sec­re­tary Wil­bur Ross warned on Tues­day that the U.S. will walk away from NAFTA if key prob­lems are un­re­solved, adding that Canada and Mex­ico would suf­fer far more than the U.S. if the pact is dis­solved, Reuters re­ported. “I would cer­tainly pre­fer them to come to their senses and make a sen­si­ble deal,” Mr. Ross told a Wall Street Journal fo­rum. “In any ne­go­ti­a­tion, if you have one party that is not in fact pre­pared to walk away over what­ever are the thresh­old is­sues, that party is go­ing to lose,” Mr. Ross added. Dis­pute res­o­lu­tion is sched­uled for just one day of dis­cus­sion in this ses­sion, on Nov. 21 – the last day of this round of ne­go­ti­a­tions – ac­cord­ing to a sched­ule of the talks ob­tained by The Globe and Mail. Among the other con­tro­ver­sial sub­jects, rules of ori­gin – which in­clude the Trump ad­min­is­tra­tion’s U.S.-con­tent de­mand for au­tos – is sched­uled for four days of talks from Satur­day to Tues­day, and pro­cure­ment will get two days, on Fri­day and Satur­day. On Chap­ter 19, in which bi­na­tional trade pan­els re­view puni­tive tar­iffs – such as the ones the United States is levy­ing on Cana­dian softwood – Washington wants the pan­els done away with and such cases han­dled in­stead by the reg­u­lar court sys­tem. Ot­tawa has de­clared this is a red line and will never agree to lose the pan­els. For Chap­ter 11, which al­lows com­pa­nies to sue gov­ern­ments for pol­icy de­ci­sions that hurt their busi­nesses, the United States wants the right to opt out of the pro­vi­sion. And on Chap­ter 20, which di­rects gov­ern­ment-to-gov­ern­ment trade dis­putes, the United States wants tri­bunal de­ci­sions made non-bind­ing, so the los­ing side can sim­ply ig­nore them. In the softwood dis­pute, the fi­nal de­ter­mi­na­tion on Nov. 2 by the U.S. De­part­ment of Com­merce re­sulted in a coun­ter­vail­ing duty of 14.25 per cent and anti-dump­ing duty of 6.58 per cent against most Cana­dian lumber. The com­bined tar­iffs of 20.83 per cent against the ma­jor­ity of Cana­dian softwood im­ports into the U.S. com­pared with 26.75 per cent in the pre­lim­i­nary find­ings. Canada’s Chap­ter 19 re­quest is backed by seven prov­inces af­fected by the du­ties, with sup­port also from lumber pro­duc­ers that in­clude West Fraser Tim­ber Co. Ltd., Can­for Corp., Tolko In­dus­tries Ltd., Res­o­lute For­est Prod­ucts Inc. and J.D. Irv­ing Ltd. Pro­vin­cial forestry as­so­ci­a­tions also en­dorsed the ap­peal. An­other op­tion is for Canada to take its lumber case to the U.S. Court of In­ter­na­tional Trade. On Tues­day, the Cana­dian gov­ern­ment kept that op­tion open by writ­ing a sep­a­rate let­ter to the U.S. sec­tion of the NAFTA Sec­re­tar­iat: “We are en­clos­ing a No­tice of In­tent to Com­mence Ju­di­cial Re­view, pur­suant to Rule 33 of the NAFTA Rules of Pro­ce­dure.” Canada could also ap­peal through the World Trade Or­ga­ni­za­tion in 2018, in­dus­try ob­servers say. The Com­merce De­part­ment’s Nov. 2 de­ci­sion “against Canada’s softwood lumber pro­duc­ers is un­fair, un­war­ranted, and deeply trou­bling,” ac­cord­ing to a state­ment is­sued by For­eign Af­fairs Min­is­ter Chrys­tia Free­land’s of­fice. “We will vig­or­ously de­fend our in­dus­try against th­ese un­fair and puni­tive du­ties,” added BC Lumber Trade Coun­cil pres­i­dent Su­san Yurkovich. The Com­merce De­part­ment im­posed the coun­ter­vail­ing duty as a puni­tive mea­sure against what the U.S. sees as sub­si­dized Cana­dian lumber, while say­ing the anti-dump­ing duty is for sell­ing softwood be­low mar­ket value. The new anti-dump­ing rate kicked in on Nov. 8. The new coun­ter­vail­ing duty would take ef­fect af­ter the U.S. In­ter­na­tional Trade Com­mis­sion votes, by Dec. 7, on the is­sue of U.S. lumber pro­duc­ers be­ing in­jured.

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