”œAvoid self-righteousness like the devil,” John F. Kennedy used to say, quoting British military historian Liddell Hart, ”œnothing is so self-blinding.” We haven’t quite been following that advice in our trade rela- tions with the Americans lately. When in August a NAFTA Extraordinary Challenge Committee ruled in our favour in the softwood lumber dispute and the Americans reacted by saying they preferred to abide by a WTO panel decision more sympathetic to their position we let forth a rhetorical barrage that, on this 200th anniversary of Trafalgar, would have done Nelson proud.
We have won every softwood decision NAFTA has ever adjudicated, we said (which is not quite true, as Michael Hart and Bill Dymond point out elsewhere in this issue). The American position on this question is ”œnonsense,” the prime minister said in a speech in New York (an infelicity from a foreign visitor of the sort Lyndon Johnson once cat- egorized as ”œpissin’ on my carpet”). Our new ambassador to the US, chosen for his smoothness and business savvy, fol- lowed up by categorizing the US political system as ”œdys- functional,” which makes his declared goal of trying to influence it seem quixotic at best. Our natural resources minister was then dispatched to China to make clear to Washington we were just as happy selling our oil and gas to undemocratic and unpredictable former enemies as to our neighbours and traditional friends. Amidst it all, former Liberal MP Carolyn Parrish, apparently feeling anti- Americanism was in good hands, decided to retire.
I’m afraid the brief observations that follow will not offer a solution to the softwood lumber dispute, which has been going on, it seems, since John A. Macdonald was a lad. As I write this I have in hand an IRPP vol- ume called The Softwood Lumber Dispute and Canada-U.S. Trade in Natural Resources, by Michael B. Percy and Christian Yoder. Written in 1987, it concluded in part ”” perhaps a little self-righteously ”” ”œ[s]ound economic and legal arguments do not necessari- ly guarantee Canadian industry unimpeded access to the US market. Rather than relying on such argu- ments, it would seem sensible to adopt the view that legal harassment is a long-term cost of doing business in the United States.” Indeed. Even with a new dispute settlement mech- anism of the sort that was being pro- posed in those pre-FTA days, they say, ”œthe underlying reality ”” the respon- siveness of the political process to protectionist pressures, which is the heart of the problem ”” will remain.”
If the problem is fundamentally political, it requires a political solu- tion. There are two general ways out. One is to embed a softwood deal in a larger NAFTA reform, perhaps of the sort Gary Clyde Hufbauer and Jeffrey Schott describe in their new book NAFTA Revisited: Achievements and Challenges. Their outline for a soft- wood deal is that on the Canadian side we introduce ”œauction-based provincial timber sales, open to all bidders, for a significant portion of stumpage rights,” and in return the US ”œrecalculate its countervailing duties (CVDs) on lumber derived from noncompetitive stumpage and totally exempt lumber derived from auction-based stumpage.” By con- trast, Hart and Dymond propose a narrow deal focusing on softwood alone. Each side would begin by admitting its failings. The US would concede the NAFTA panels are right in criticizing its CVD calculations. We would grant that the WTO panels are correct that stumpage can be a sub- sidy. And negotiations would proceed from there. This is easier said by aca- demics than done by trade practition- ers, however. Softwood has been negotiated, off and on, for years, yet so far no settlement is in sight. For the moment our strategy seems to be to litigate to the bitter end. Climbing down from that strategy and pursuing negotiations instead is made more difficult every time we proclaim to the world that we have NAFTA on our side. If we are in the right legally and morally, why must we negotiate?
A second obstacle to negotiation, and part of what makes self-righteous- ness so appealing, quite apart from Canadians’ nat- ural talent for it, is George W. Bush. The second President Bush occupies essentially the same space in Canadians’ psyches as Osama Bin Laden does in Americans’. We don’t actually think him guilty of bloody jihad ”” although the Moore-ites among us would equate Iraq war casualties with the 9/11 murders ”” but, especially among central-Canadian elites, he is immensely unpopular. Denouncing him is easy, fun and popular, a fact that has not gone unnoticed by Liberal Party strategists as they pre- pare for the 2006 election. Far better to run against George Bush and Ralph Klein than Judge Gomery, especially if the direction of the campaign is left- ward and any contestable seats are in Quebec, where Bush has almost as few sympathizers as he has in France.
The obvious difficulty with such a strategy is that, barring death or impeachment, Bush will be president until January 2009, which is more than three years away. He is going through hard political times at the moment but these things change, as our prime minister well knows. In reality, Bush is much more flexible than his critics suggest. But he does give the impression of living by the Kennedy maxim of ”œDon’t get mad, get even.” Running against Bush won Gerhard Schroeder another term as German chancellor in 2003, but it got Germany the cold shoulder for two years. Bush and Martin repeatedly assure us, in spite of all appear- ances, that their relationship is good. But we are clearly a long way from the time when Brian Mulroney could phone up Ronald Reagan anytime he wanted. Jean Chrétien made fun of Mulroney’s fishing trips with the first President Bush but took care to become Bill Clinton’s golfing buddy. Martin’s decision to go so public on softwood lumber suggests private channels of communication have dried up. Given the current Canadian view of Bush as an ignorant, unilater- alist cowboy, Canadian voters will probably excuse Martin for the two men’s unfriendliness. History may not be so forgiving.
By ridiculing and demonizing President Bush we make it impossible to put ourselves in his place and understand his problems. Presidents’ personal antipathies are not always decisive. US politics may be dysfunctional but they still impinge on US policy. Our beef with Bush (beef aside) is that the US owes us $5 billion of softwood lumber duties. We forget that in a similar episode in the early 1990s, it took us two years to get our money back ”” and the bill was substantially smaller then. Bush has just won a hard fight with Congress over a free trade agree- ment with Central America. His political opponents think he is too trade-friendly to foreigners as it is. Even so, he is about to enter the endgame in the Doha Round of trade negotiations, as WTO trade ministers meet in Hong Kong in December.
The notorious Byrd amendment, which requires that the US dole out duty monies to the supposed American victims of foreign subsi- dies, and which has been con- demned by a WTO panel, is very much in play. For the US to give it up before the hard bargaining begins in Hong Kong would be almost shock- ing. Yes, it’s unfair that countries pay twice for US trade concessions, as Hart and Dymond argue, but the US has our $5 billion in hand. And Bush is hardly the first head of govern- ment to try to manufacture himself some bargaining chips before entering a high-stakes negotiation. Believe it or not, some things are more important than softwood.
Then there is the problem of link- age. We are keen to link lumber to oil and gas exports. Bush presumably would prefer to link his trade policy to Canada’s uncooperativeness on the foreign policy that, at this writing, seem likely to be his main legacy. Paul Cellucci, the former US ambassador to Canada, always insisted there was no such linkage: the bilateral relationship was too important for that. But I sus- pect that if we took the $5 billion in the form of an aircraft carrier or a few C-5As or the costs of a battalion or two to run patrols in the safest corner of Iraq, we would get our money back tomorrow. Bush did not invent the political rule that to get along you go along. If we thought him wrong on Iraq, we were right not to go along. But we shouldn’t be surprised if, as a result, we don’t get along.
As for our threat to divert our trade to China and India if the Americans won’t honour their NAFTA commitments, the CIA may be hope- less at finding weapons of mass destruction, but they probably do have charts of the sort reproduced here. Maybe Martin is right and the 21st century will belong to China, but as figures 1-4, so far as Canadian trade is concerned, for the moment China and India are nobodies. Exports to China, mainly of wheat, hit almost 3 percent of our total exports when John Diefenbaker was prime minister, but in 2004 a more diversified flow was just 1.3 percent of the total. Exports to India are even more pitiful. No doubt these numbers will be read in some circles as evidence that, even after several Team Canada missions, we need to work much harder to diversify our trade. But how much cost would we have to incur to get our Asian trade up to meaningful levels of diversification ”” a third of the total, say? And do we really wish to bet our future on markets that must be cultivated so assiduously? Cost to market is not an irrelevant consideration in trade. President Bush or no President Bush, in most parts of this country the United States is and will remain just down the road. How big a loss are we willing to take on oil and gas sales to China just to demonstrate our sup- posed independence from the US market?
What of the doomsday case? Suppose relations with the US contin- ue to deteriorate. Suppose we do win all outstanding NAFTA and WTO liti- gation. And suppose the US still refus- es to give us our money (which I don’t actually think would happen). What do we do then? If we decide to impose the retaliatory tariffs that by then will have been authorized, what goods do we choose? After WTO pan- elists struck down our protectionist magazine policies and the US was playing hardball to get us to comply with the rulings, their negotiators mused openly about imposing tariffs on steel. Our point man on magazines was none other than Sheila Copps, who hailed from Steeltown, Canada. (Hamilton, Ontario). What exactly do we import from the environs of Crawford, Texas?
If in the end the US did not comply, would we really withdraw from NAFTA? In fact, softwood aside, the agreement is working well. Estimates of its effect on trade flows range from a 5 to 50 percent increase. Even the chapter 19 dispute settlement mecha- nism that has become so notorious because of the logjam in softwood is working well, as table 1, adapted from Hufbauer and Schott’s new book shows. We may have ”œwon” only half our cases but the important point in such bodies is not batting a thousand but getting dis- putes settled. In the first 10 years, more than 100 cases have been brought, which seems a significant vote of confidence in the mechanism, even if it does move more slowly than it should (as witnessed by the large number of cases still pending).
In the end maybe brinksmanship will work. Small countries sometimes do outwit large ones. More often they do not. And the danger in confronta- tion is obvious. John Kennedy was also fond of the writings of the histo- rian Barbara Tuchman. He reportedly read The Guns of August, her 1962 book about the first days of the First World War, during the Cuban Missile Crisis. ”œWar is the unfolding of mis- calculation,” Tuchman wrote. In the scheme of things, a trade war between Canada and the US would be as nothing compared to a nuclear exchange between Cold War Russia and the United States. But we who lived through it would find it unpleasant enough.