DEAL ENDS MYTH OF FREE TRADE
Apr. 28, 2006. Toronto Star
THOMAS WALKOM

Think of the latest deal on softwood lumber as a wake-up call — not just
for those Canadians who make their living sawing down trees, but for all
of us.

It is a wake-up call in two ways.

First, it demonstrates the futility of trying to bind the United States
through bilateral free trade deals.

The 1989 Canada-U.S. Free Trade deal and its successor, the North
American Free Trade Agreement were designed specifically to solve trade
disputes like that of softwood lumber. But they did not and cannot. The
U.S. government is a complex beast that, in the end, will always act in
American interests. That is reality.

If this reality requires Washington to ignore solemn trade covenants —
particularly when dealing with minor countries like Canada — it will do
so happily.

As Prime Minister Stephen Harper noted so eloquently in another context: Get
used to it.

Second, the deal leaked to the media Wednesday and confirmed yesterday
demonstrates the poverty of our own industrial structure.

Canada is still trying to get by through exporting raw and
semi-processed commodities to the world. That was fine in the 19th and
20th centuries. It is not any more.

Today, many countries can produce two-by-four lumber as cheaply, or even
more cheaply, than Canada. The Russians are doing it; so too are the South
Americans.

Ditto with other commodities — from corn to soy beans — that Canada once had
a comparative advantage in producing.

This doesn't mean that Canadian farmers have to go belly-up. Nor does it
mean that lumber towns like Hearst in northern Ontario will have to shut
down.

But if we are to remain a high-wage, high-income country, things have to
change. For Canada, extensive raw material development is on its way to
becoming a thing of the past. This doesn't necessarily preclude us from
cutting trees (although we may want to cut more carefully and
selectively).

It does, though, mean that it is no longer enough to transform every
pine or spruce or fir we fell simply into lumber suitable for house
framing.

So in that sense, perhaps the intransigent Americans have done us a
favour. After 25 years of non-stop harassment, they have made it
absolutely clear that they will never give Canadian softwood lumber
producers free access to their markets.

By implication, they have served fair warning that Canada will face
similar trade restrictions on any future export that threatens powerful
U.S. interests.

It's now up to us to quit whining and figure out what to do.

Here's what we should not do.

We should not respond to this latest slap in the free trade face by
attempting to negotiate even further cross-border integration. This is
the strategy of Canada's largest businesses, as represented by the
Canadian Council of Chief Executives, and it is a dead end.

A common market or customs union arrangement with the U.S. will be no better
than the existing NAFTA. Unless we literally become part of the United
States (which I suspect many Americans would oppose), we can never hope to
wield any real clout in Washington. Canada's ambassador, no matter how
imposing his business or political credentials, will always be trumped by
the most junior senator from the smallest state.

Nor should we use our foreign and military policy to appease the U.S.
administration in the hope of winning trade points. As the softwood
lumber saga illustrates, U.S. presidents have little authority when it
comes to the day-to-day intricacies of trade policy.

George W. Bush may be impressed that Harper plans to keep Canadian
troops in Afghanistan indefinitely. But senators and congressional
representatives from the lumber-producing states are not.

Instead, we should get on with it. By acknowledging that softwood lumber
exports will have to be dealt with through managed trade rather than free
trade, Canada's federal government is finally coming to terms with the
limits of NAFTA.

As a concept, managed trade isn't so bad. It worked for many years with
automobiles. It was what the political left — when there was a political
left — called for in 1988 instead of then-prime minister Brian
Mulroney's much-vaunted Canada-U.S. free trade deal. Given that it fits
with American desires, it is also practical.

In yesterday's deal, it is not the concept that is troubling. It is the
detail. Canadian producers will be allocated a quota of the U.S. market.
But, depending on factors such as lumber prices and the value of the
currency, they could also face export taxes.

In addition, the U.S. would be allowed to keep about $1 billion of the
penalties it illegitimately imposed. American lumber producers would, in
effect, have their legal bills bankrolled by the Canadian industry.

The deal is supposed to last until 2013. But it is not clear whether it
will fare any better than NAFTA if American lumber interests change
their mind and challenge it before then.

Could Canada have struck a better arrangement? Perhaps. Both Harper and his
predecessor Paul Martin (at least in his earliest iteration) were
inordinately anxious to mend fences with the U.S. Maybe if they had held
out longer we could have done better. Or maybe not.

But at least the veil has been torn away. Thanks to yesterday's deal, we
can stop pretending we have a free trade arrangement with the U.S. and
move on.

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