EDMONTON, Alberta – About 30 years ago, when Washington was trying to compel Texans to slow down to 55 mph as an energy conservation measure, “Drive Like Hell – Freeze a Yankee” was a popular Lone Star bumper sticker.
Thanks to a long-simmering dispute over lumber, such slogans may soon be popping up here.
Canadians are so mad at their neighbors to the south that there is much talk about sending energy to Asia instead of the United States.
“Why put your biggest energy trading relationship at risk, when the stakes are so high, for a relatively modest amount of money over timber?” asked Murray Smith, Alberta Province’s representative in Washington.
The anger is mainly over U.S. tariffs on Canada’s softwood lumber. The issue has sputtered for a century, but in 2001, Washington began collecting anti-dumping duties on Canadian lumber exports. Those duties now total more than $4 billion. Under a trade measure called the Byrd amendment, the money is supposed to go to U.S. timber owners such as Temple Inland Forest Products of Austin.
U.S. companies say Canada’s provinces subsidize lumber exports to the United States by charging Canadian companies very little for logs harvested in provincial forests. Logs from either private or federal forests in the United States sell for higher, market-based rates.
“Our small guys are being hurt,” said a U.S. trade official who spoke on condition of anonymity. “The big guys may be hurt as well. But the small guys buy timber off privately held lots as well as the large guys, and the prices they are paying are substantially higher than in Canada.”
Hurricane Katrina may change the equation by raising lumber prices beyond the point of any dumping, but U.S. firms have argued against repealing the duties unless the lumber is part of Canada’s charity to the hurricane victims.
Canada sued to get the tariffs and the Byrd amendment overturned – at the World Trade Organization, the U.S. International Trade Commission, the International Trade Court in New York and through the dispute settlements panels of the North American Free Trade Agreement.
Both sides have won at different times and in different forums since the suits were filed. The WTO ruled against the Byrd amendment, but Congress hasn’t acted to repeal it.
In August, the highest dispute panel of NAFTA – the Extraordinary Challenge Committee – ruled the duties were illegal and that Washington should give Canada its money back.
But two weeks later, a WTO ruling in favor of the United States was leaked to the media. That decision meant Canada could not retaliate or get its money back without more litigation. U.S. Trade Representative Rob Portman urged Canada to come back to the negotiating table to search for a once-and-for-all solution.
Canadians are in no mood to negotiate.
NAFTA, they argue, is a treaty with binding obligations.
“Canada made the case and won the case, that should be the end of it,” said Michael Percy, dean of the Business School here at the University of Alberta. “You don’t negotiate after a judge renders a verdict. You negotiate before a verdict. Once there’s a verdict, you comply.”
The U.S. lumber companies were so incensed by the NAFTA rulings they challenged their constitutionality in a suit filed in mid-September in a federal appeals court.
Stephen Harper, the leader of the opposition Conservative Party, said in early September that Canada should look to deepen its trade relationships with China and India if the United States isn’t willing to abide by NAFTA rules.
Canada’s exports are looming larger by the day in the U.S. energy mix. We import electricity from Canada. We import more than 10 percent of our natural gas supply. And we import 1.6 million barrels a day of oil and gasoline, with much more than that in prospect thanks to Alberta’s vast resources of oil sands.
“The oil sands produced more oil this year than is produced in Texas,” Smith said. “And it’s going to be triple that amount in the next 10 or 12 years.”
After the United States said it would not comply with the NAFTA decision, there was talk in Canada of retaliating by curbing oil exports, but that talk was quickly doused by Prime Minister Paul Martin’s Liberal-led government.
Harper’s threat is subtler. China is investing in Canada’s oil sands and in pipelines to Canada’s Pacific coast. If the United States won’t play by NAFTA rules, say Canadian Conservatives, the wise path for Canada is to diversify its exports. About 88 percent now go to the United States.
“Grandfather was a coal miner, and he used to say, just don’t keep all your eggs in one basket,” said Guy Boutilier, Alberta’s environment minister.
In a global market, it should not matter whether the United States gets its oil from Canada or Saudi Arabia. But Canada is a lot more secure than Saudi Arabia, and oil-supply disruptions are all too common in the Middle East.
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