Friday, February 11, 2005

Time to hit back at U.S., despite risks

VICTORIA - It's time to go to war with the U.S., even if we're going to take some heavy economic casualities at home.
Federal Trade Minister Jim Peterson has just taken the first steps towards retaliating in the softwood dispute, preparing to throw up barriers to U.S. products. Ottawa wants to slap duties on U.S. imports into Canada equivalent to the U.S. softwood duties; the theory is that American producers will be hurt, and pressure their government to settle the softwood dispute.
It's time, says Forest Minister Mike de Jong. But he's warning that Canadian consumers are going to get caught in the crossfire.
Trade wars are inherently destructive, and in this case Canada has the most to lose from an escalating battle. But given the U.S. refusal to settle the dispute, or to agree to refund more than $4 billion in duties if Canada wins the legal battle, there appear to be few alternatives.
Peterson plans to ask the World Trade Organization for permission to impose duties that would push up the costs of targeted goods from the U.S. by some $4 billion. De Jong said likely targets would include food and alcohol products from the U.S.
About time, people in forest communities might say.
But the duties don't just make life tougher for California wineries and Washington apple growers. The $5 billion in duties may hit sectors of the U.S. economy, but it comes out of your pocket too.
Slap a 50-per-cent duty on Gala apples from Yakima, and the producers will absorb some of the extra costs and then raise prices enough to pass the rest on to Canadian consumers. Canadian growers, with less competition, will take advantage of the chance to raise their prices. Those apples you put in the kids' lunches - which they probably throw away - will cost more.
That makes it critical for the federal government to come up with a strategic approach. The aim is to inflict the maximum pain on the most politically influential producers in the U.S., without hurting Canadians too badly.
It's a high-risk move. Canadian consumers - and businesses that face higher costs on U.S. products they need because of duties - are going to becoming unhappy quickly.
And a trade war, like any other war, can escalate rapidly and destructively. The U.S. government has so far sided with its lumber industry every step of the way. One response to Canadian duties might be more duties on our exports, or border barriers that slow the movement of goods from Canada.
Canada needs access to the U.S. market much more than the Americans needs us. Canada exports about $300 billion worth of goods to the U.S., against $200 million worth of products that flow northward. Given the scale of the two economies, it's easy to see who is going to take the bad beating in any full-on trade battle.
But it's hard to see any other option at this point. Canada has prevailed in most of the WTO and NAFTA decision in this dispute, without winning any softening of the American position.
Now, U.S. politicians are talking publicly about hanging on to the $4 billion duties collected so far even if they are found to be illegal.
Canada's not rushing to do battle. Winning TO approval for the retaliatory duties will take at least six months. Ottawa will then consult with Canadian industry on a proposed list of target products, to give companies a chance to argue against levies on American products they need.
The delay is useful. Canada can begin urging American companies who may be hurt by new duties to lobby their government to resolve the dispute.
A trade ware should be a last resort, after negotiations and legal efforts to find a solution have been exhausted.
But given American intransigence, and increasing signs that the U.S. government is unwilling to accept legal decisions, it's time to take the risk.
Footnote: The B.C. forest industry, which has paid about half the duties so far, naturally welcomed the tougher stance. De Jong and Premier Gordon Campbell are heading to Ottawa this week to meet with Prime Minister Paul Martin, hoping to convince him to meet with George Bush on the issue.

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