Canada-Us Trade Relations

1.0 Introduction

With over $400 Billion in trade last year it is inevitable that Canada and the United States are each others largest trading partners and more importantly, the largest trading relationship in the world. Trade relations between these two countries have amplified during the past decade through the 1994 implementation of the North American Free Trade Agreement (NAFTA). Nevertheless, the trading relationship between these two countries has not always been harmonious. Recent disputes over softwood lumber, beef and wheat have created a fair bit of animosity between Canada and the United States. Although the World Trade Organization (WTO) and even NAFTA have suggested promising dispute resolution provisions, there is still a fair bit of bitterness between these two parties. The focus of this paper is to evaluate the Canada-United States trade relationship and to focus more specifically on the three main commodities of concern; softwood lumber, beef and wheat. The conclusion of the paper will attempt to determine exactly where the future of this relationship lies and which country will fall victim to the Canada-United States trade dispute.

2.0 The Softwood Lumber Dispute- Protectionism or Subsidizing?

“Softwood lumber is one of Canada's largest exports to the United States, with over 19 billion board feet of lumber shipped in 2003 alone. These exports accounted for about $6.8 billion dollars. Over one third of the United States' softwood lumber supply comes from Canadian producers.” With such extensive volumes of trade taking place in the softwood lumber industry disputes are virtually inevitable.

At the root of the softwood lumber dispute is the claim made by the United States that Canada is unfairly subsidizing Canadian lumber production. Canada denies these claims and insists that they are not subsidizing softwood lumber but rather protecting the industry. The difference between the forestry industries in Canada and the United States is that in the United States most are privately owned; timber prices are set by private contracts or auctions. In Canada however, forests are owned by the provinces which means that the prices are not set according to the market conditions but are predetermined. The United States argued that these prices were too low and therefore responded by levying tariffs on Canadian lumber imports. In an October 13, 2004 statement Jim Peterson, Canada’s international trade minister, affirmed, "all along, Canada has maintained that the American industry is not injured by Canadian softwood. Our position will not change."

On August 29, 2003 the WTO affirmed Jim Paterson’s position when a panel concluded that “the U.S. wrongly applied duties on Canadian softwood exports.” They also found that “provincial stumpage programs provide a financial benefit to Canadian producers. However, the benefit is not enough to be a subsidy, and does not justify current U.S. duties.”

2.1 A Possible Resolution?

The United State’s consistency with disputing all resolutions imposed by the WTO is not of benefit to finding a peaceful resolution to the softwood lumber war. A tentative deal last December to end the dispute stumbled over questions of quotas and market share during any interim period before duties are removed, as well as how much of the duties already collected would remain in American hands. Canada insists that an open and competitive market is not in its best interest. Canada keeps winning the battles however, the dispute won’t go away. If a harmony is going to be achieved on this issue, it falls into the hands of the United States. Legally, Canada is not in the wrong and therefore a peaceful resolution lies in the United States accepting the WTO’s rulings. The forestry industry is something too sacred for Canadian’s to lose out on. American’s are going to have to accept that.

3.0 Mad Cow Disease and Beef Trade: An Introduction

Canada’s share of the world market in beef is roughly 15%. However, the Country’s cattle industry was essentially rattled in May, 2003 when a cow from Alberta had tested positive for bovine spongiform encephalopathy (BSE), more commonly known as mad cow disease. Prior to the worldwide ban on Canadian beef products, Canada was the third largest exporter of beef in the world. According to Stats Canada, in 2002, this export market was worth about $4.1 billion. After the ban, the value of these Canadian exports in June, July and August dropped to virtually zero.

The United States later announced that it would re-open its border to Canadian beef in December, 2003. The situation was further complicated on December 23, 2003 when a cow in Washington D.C. was found to have