Turning Oil into Trees

Last week the U.S. made it clear that it was no longer going to abide by NAFTA. Since the late 1980s, many critics have argued that NAFTA had always been intended as a one-way deal, with the majority of benefits going to American business interests.

The issue at hand is of course Canada’s long-standing complaint concerning the importation duties that United States trade officials imposed on many wood exports. The most recent – which the BC government, who must have a quotient of horror film aficionados on staff ready for every requisite press release, so brilliantly names ‘Lumber IV’, commenced in May of 2002. At the time, it was argued that Canada was illegally subsidizing lumber production. Since then roughly $5 billion in anti-dumping and countervailing tariffs has been collected from the Canadian Forestry Industry.

Canada has made numerous appeals to both the NAFTA legislating body and the World Trade Organization, and so far every single appeal – except, of course, one done by the U.S. in the U.S. – has demonstrated that Canadian lumber is not being dumped at illegal price levels. Each of these legal actions has demonstrated that the States is acting illegally in collecting duties.

So what has changed recently? Well, for starters Canada won another appeal, this time adjudicated by the very cool sounding NAFTA Extraordinary Challenge Committee. U.S. Trade Representative Rob Portman’s stated “We are, of course, disappointed with the ECC’s decision, but it will have no impact on the antidumping and countervailing duty orders given the ITC’s November 2004 injury determination. We continue to have concerns about Canadian pricing and forestry practices.”

In my mind, the issue follows a simple supply model. Canada has a lot of space for a lot of trees. Thanks to urban sprawl, industrial growth, and a tenfold higher population, the United States simply cannot compete with Canada on a tree for tree basis. Obviously, any business which has a controlling interest over raw resources will be able to operate more cheaply. Moreover, despite some ecological nightmares that continue to occur in Canadian forestry, the industry up here has more environmental protections in place than do their southern counterparts, largely due to the early realization that the healthy re-growth of forests results in a more profitable industry. The principal issue the U.S. has with Canadian forestry practices is that our Crown land is cheaper than competing tracts of land in the States. This stance ignores the fact that most land in the U.S. is more expensive than in Canada. Again, let me refer you to the tenfold higher population, the smaller country, and the so-called open-market system. Few people live in Northern British Columbia or North-Western Ontario (I don’t meant North Bay, I mean north of Armstrong), and consequently land prices are fairly low in comparison to, say, Washington State.

More importantly than the U.S. reaction – which we should frankly just come to accept as the manner in which they do business – is that of our own government. All of a sudden, the Liberals seem to have a spine in regard to Lumber IV. First they called off trade negotiations for the simple reason that you cannot bargain with people who don’t abide by trade agreements. Furthermore, today Industry Minister David Emerson spoke about efforts to retaliate: “I have a background from my younger days in hockey. When somebody slammed you into the boards with undue force and aggression, you took their number. I think we've got to take their number." So what number is being taken, specifically? Nothing has yet been announced, but Emerson mentioned that Ottawa is seeking to list a number of American exports that will have duties applied “without serious damage to the Canadian economy and, hopefully, with maximum impact in the U.S.”

Sadly, Emerson was quick to rule out the resource with the most pressing potential to the American economy. By imposing exportation duties onto Canadian oil reserves heading for the U.S., as NDP leader Jack Layton had initially proposed, the American population would quickly notice the results at the pumps. This would have a double effect. The duties would cause the average American to begin to think about why the country’s gas prices are so high, and if Canada played the PR game properly, a great deal of pressure could be exerted. Additionally, it would cause many northern U.S. residents to cross the border into Canada to buy gas, much like Canadians were doing in the late 1980s. This would allow gas tourists to see what a nice country it is up here, with all of our pretty trees.

The reasoning behind Canada’s refusal to restrict oil supply to the States is largely provincial, in that the Albertan economy would be “unfairly targeted” (maybe you should tell that sob story to east coasters, oil ranchers…). Realistically speaking however, every country on the planet needs a hell of a lot of oil, and China or India in particular would love to get a piece of Alberta’s black gold. But of course, that means Alberta’s oil industry might have to actually do some work to promote itself, instead of just opening the floodgates to our southern neighbours.

Out of all of this, normal Americans might start to get news reports concerning the vast amounts of oil that are just north of them, and wonder why they can’t get it as cheaply as other nations. As oil supplies continue to restrict towards the end of the decade, Canada’s oil supply could prove to be the biggest bargaining chip that the country has against the We-Set-Our-Own-Rules American government. And anyway, what are they going to do? Invade us to get our oil? Put pressure on Alberta to secede from the country? The U.S. just doesn’t (*cough* Venezuela) ever (*cough* Iraq *cough*) do that sort of thing.





NAFTA ECC ruling on U.S. appeal of previous NAFTA rulings

BC government site concerning the dispute