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Canada, U.S.: Get over dated sovereignty ideas
March 13, 2002


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  • The last time Canada imposed a tax on its own softwood exports, 15 years ago, it was front-page news for weeks. The Liberal opposition described the measure as the "greatest sellout" in the history of Canada-U.S. negotiations; the NDP said it was "a betrayal of Canadian sovereignty."

    The Mulroney government responded gamely, defending the seemingly undefendable as the best outcome possible. The alternative was even tougher U.S. border restrictions; at least this way the tax revenue would stay in Canada. And the Tories vowed that the free-trade agreement then being negotiated would strengthen Canada's hand by establishing rules so future disputes would be resolved fairly.

    Logic rather than power would prevail, and Canada -- as the weaker party -- would be the prime beneficiary.

    Fast-forward to 2002: The Canadian government likely will impose a tax again on softwood exports, and at a higher rate than the 15 per cent imposed back then, at least as an interim step toward a Canada-U.S. deal in which Canadian producers will adopt a U.S.-style stumpage system (the cost to cut down trees).

    The cry that Canada is losing a precious facet of its sovereignty is sure to be heard again, although not to the same extent. Canadians -- and their political parties, by and large -- have come to agree that free trade is good for the country, and that while dealings with the United States can get bumpy, they are worth it to tap that rich marketplace.

    The sovereignty argument, in any case, is specious. Ottawa's intent during the free-trade talks, and Canada's own interest, lay in far greater restraints on what generally was perceived as Canadian sovereignty, in the form of a strict code setting out what constituted unfair trade practices, such as subsidies.

    Canada sought then to recast its sovereignty in bilateral terms; Ottawa's reasoning -- quite correctly -- was that inducing the United States to do the same would represent a superb victory for Canadian interests.

    But the Reagan administration didn't want to compromise U.S. sovereignty by restricting Washington's unilateral right to set trade policy in the U.S. interest. The spectre of a "supreme court of trade" made up of Canadians and Americans making binding decisions on the fairness of U.S. border measures was just too much. Even a watered-down compromise now included in NAFTA led to legal challenges (which failed) by U.S. protectionist groups claiming the U.S. constitution had been violated by what amounted to a process of wonky internationalism.

    "In [the softwood] case, Canadian sovereignty has been challenged not because of the transfer of authority to supranational institutions, but precisely because supranational institutions were not strong enough," concluded a study of the softwood dispute by professors George Hoberg and Paul Howe.

    The free-trade agreement set out a five- to seven-year process for agreeing on common trade rules. But the talks never went anywhere, largely because of those same U.S. sovereignty concerns but also because Ottawa remained worried that a subsidies code could end up catching some old-style Canadian policies -- likely not health care, but possibly forms of industrial assistance or even regional aid programs.

    And what has happened since?

    Canada and the United States have grown much more economically integrated. The United States has agreed to some restraints on its unilateral trade powers under the World Trade Organization. Other WTO members, including the European Union and Canada, have taken advantage of that to challenge protectionist U.S. measures at the WTO. And Canada, under its prolonged process of economic restructuring, has reduced or even eliminated some of the questionable practices that might have been attacked by the United States.

    In other words, it may be time for Ottawa to start thinking again about trying to interest Washington in the sort of mutual rules that would ensure trade policy isn't set under circumstances that benefit the country with the bigger muscles -- rules on what is permissible, in tandem with a less adversarial process for resolving conflicts. Otherwise, what you get is the softwood battle, which benefits neither the broad Canadian nor American interest.

    The EU points the path to the future, especially since its 15 members in some ways are less economically integrated than are Canada and the United States. They have processes aimed at resolving differences before they become full-fledged disputes. And they have credible systems for resolving the disputes that do arise, based on agreed trade rules that recognize that the EU as a whole is bigger than the sum of its individual nations.

    Canada and the United States would benefit from some of the same. The two countries should get over their dated concepts of sovereignty and start looking at ways to oversee their mutual economic space together.

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