Trade is complex, and so is NAFTA agreement

U.S. doesn’t always understand how Canada’s systems work

On Nov. 18, 2015, Canada requested a binational panel review of the U.S. Department of Commerce’s decision the previous month to impose countervailing duties on Canadian manufactured supercalendered paper.

In April 2017, a North American Free Trade Agreement review panel essentially ruled against the U.S. countervailing duty decision.

The U.S. countervailing duties were imposed in November 2015 after a U.S. investigation of a complaint by two American supercalendered paper manufacturers that Canadian exports of the paper benefited from government subsidies. Supercalendered paper is mainly used in magazines, catalogues, corporate brochures and advertising inserts.

The NAFTA review panel said the U.S. needs another look at its claim that a Nova Scotia paper mill benefited from electrical power rates set by that province’s public utility regulator, the Nova Scotia Utility and Review Board, which acts under authority of the Nova Scotia Public Utilities Act.

The board supervises all electric utilities operating as public utilities in Nova Scotia. Its jurisdiction includes setting rates, tolls and charges. American paper manufacturers seem to believe regulated electricity rates constitute a form of subsidy.

Nova Scotia argued the utility and review board is an arm’s-length organization independent of government.

I suggest part of the problem for Americans is many of their ostensibly similar regulatory agencies are filled with patronage appointments — often from the executive ranks of the regulated industries.

Canadian regulatory agencies, for the most part, have been largely immune to a two-way traffic of personnel between regulated industries and regulatory agencies. (I’ve written a book on the subject titled Canadian Regulatory Agencies.)

Canada’s relationship with the U.S. through Chapter 19 of NAFTA has been a history of constant battles with U.S. companies, sympathetic politicians and a U.S. Commerce Department that apparently does not believe that duties, once collected, should not be returned if Americans are found to have erred.

The story of Canadian softwood lumber exports and countervailing U.S. duties collected — now totalling well over $5 billion — is a tale of frustration for Canada.

Recently, President Donald Trump talked about Canada being unfair to American milk producers because of Canada’s supply management system.

Supply management of agricultural products has been a key feature of income support for many, especially marginal, Canadian farmers. Trump considers this unfair to Wisconsin milk producers. It is probably unfair to Canadian consumers.

In Trump’s rambling speech he sort of argued that “in Canada, some very unfair things have happened to our dairy farmers and others.” He ignored the fact that Wisconsin milk producers have flooded their market, thereby lowering prices and their own incomes. Moreover, agricultural support or subsidy programs are widely used in America.

A strange sidebar to Trump’s talk about Canada is that the Conservative party’s Maxime Bernier agrees. Bernier would be prepared to make a deal on milk and supply management if Trump would concede that American consumers have suffered because of U.S. duties on softwood lumber. To Bernier’s credit, he urged Trump “not to succumb to protectionist nonsense.” It will be interesting to see how Quebec dairy farmers respond to Bernier.

NAFTA is an enormously complex agreement. The dispute resolution provisions (in chapters 11, 19 and 20) have provided reasonable means for resolving extremely complex situations. Chapter 19 is unique because it permits subject companies to initiate actions. It is much more user friendly than the World Trade Organization’s dispute resolution process.

However, part of the problem is this is less about fairness than the American inability to understand that a “government of private interests, for private interests, by private interests” isn’t as compelling to Canadians.