Time for Canada to fold 'em or hold 'em in talks on trade

After aborted negotiations, the Bush administration went ahead and slapped Canada with a punishing 27-per-cent duty on $10-billion worth of softwood lumber imports.

Ignoring Ottawa's protestations of innocence, the United States is now pursuing the Canadian Wheat Board with equal vigour. It has branded the CWB an evil monopoly that is wreaking havoc in world grain markets. If the Bush administration gets its way, $500-million of Canadian wheat could face duties as high as 37.5 per cent within a few months. But take heart, there's another way to look at these trade flashpoints.

The big surprise is that Canada actually stood its ground, refusing to accept a bad deal on lumber. Agreeing to a border tax, quotas or other trade restraints would be an admission of guilt to U.S. allegations that lumber is massively subsidized. Worse still, these concessions would be tantamount to an abdication of sovereignty over how Canada's forests are managed and used. The talk out of Ottawa on wheat is similarly defiant, and that's a hopeful sign.

"We know we're right," Ralph Goodale, the federal minister responsible for the CWB, said this week in response to U.S. allegations that Canada is guilty of thwarting U.S. wheat imports at home and illegal pricing in third markets. Canada is instead fighting for its trade rights. Both disputes are likely to wind up being settled by either North American free trade agreement or World Trade Organization dispute settlement panels.

Five years ago, the big worry was that Canada appeared ready to capitulate again and again in the face of such U.S. trade allegations -- valid or not. Managed trade was threatening to become the rule, rather than the exception, for entire industries. In the 1990s, Canada agreed to at least three managed, or negotiated, deals that overrode normal trade rules -- softwood lumber, wheat and sugar.

It's no coincidence that at least two of those disputes have persisted and intensified in spite of those failed attempts to set them aside. The two sides simply went back to fighting as soon as the deals expired.

Canada isn't as principled as one might think. Ottawa would agree to new deals on wheat and lumber in a heartbeat if the conditions were right. Canadian Trade Minister Pierre Pettigrew has admitted as much, insisting repeatedly that he'd prefer a negotiated settlement.

Agreeing to trade restrictions may be pragmatic. You secure some access to the U.S. market in exchange for restraints, thereby salvaging jobs at home today.

But longer term, the benefits are suspect, particularly if managed trade merely perpetuates, rather than resolves, underlying trade grievances.

Take the case of lumber. Canada has argued for years, before NAFTA and WTO panels, that it does not subsidize its lumber industry. Doing a deal now would be an admission that it has been virtually giving away its trees for decades. The assumption on the Canadian side is that a border tax would be temporary -- a transition to free trade, if you will. But once under the umbrella of an agreement, getting out from under it could prove tricky.

The reality is that United States alone has the power to determine whether Canadian practices meet the test of free trade. More specifically, the U.S. lumber industry must sign off on how provincially owned timber is marketed in Canada before the duty is lifted.

And that's why efforts to reach a deal have proved to be so intractable. The U.S. Commerce Department had promised to lay out a road map for the provinces to get out from under the duties by the end of this year. With 10 days left before the new year, that deadline won't be met, and another attempt at settlement seems to be going nowhere.

Any attempt to settle the wheat dispute would inevitably run into similar problems. It's not unrealistic that these negotiated deals could become templates for other products down the road.

That's why the time is ripe for Canada to take a hard look at these disputes. It should determine whether the U.S. grievances have merit. If they do, Canada should quickly scrap the Wheat Board and provincial timber sales regimes, and then demand open access to the U.S. market.

But if Ottawa genuinely believes the Bush administration is engaged in trade harassment, it should book a hearing room in Geneva, and stop flirting with the Holy Grail of a negotiated peace.