Crawl Across the Ocean

Thursday, August 11, 2005

But I Don't Wanna!

I don't really have anything to add to what Timmy, Greg and Andrew have already said about the latest evidence that when it comes to trade deals with the U.S., Canada gets to play the role traditionally played by Native Americans (i.e. the patsy).

To summarize, Canada won another trade panel ruling in the endless softwood lumber dispute and the American response was,
“We are, of course, disappointed with the (panel’s) decision, but it will have no impact on the anti-dumping and countervailing duty orders,”

Or to put it more bluntly, 'We don't wanna and you can't make us'.

No doubt Americans are working behind the scenes to fix the flaw in the trade agreement which allowed a trade panel to rule against the U.S., but, until they fix that error, the NAFTA agreement has less and less credibility.

I'm reminded of a classic Seinfeld moment at a car rental agency:

"Agent: Can I help you? Name please?

Jerry: Seinfeld. I made a reservation for a mid-size

Agent: Okay, let's see here.

Agent: I'm sorry, we have no mid-size available at the moment.

Jerry: I don't understand, I made a reservation, do you have my reservation?

Agent: Yes, we do, unfortunately we ran out of cars.

Jerry: But the reservation keeps the car here. That's why you have the reservation.

Agent: I know why we have reservations.

Jerry: I don't think you do. If you did, I'd have a car. See, you know how to take the reservation, you just don't know how to *hold* the reservation and that's really the most important part of the reservation, the holding. Anybody can just take them.

Agent: Let me, uh, speak with my supervisor."

The Americans know how to sign trade agreements, they just don't know how to *abide* by them. And that's really the most important part of an agreement, the abiding. Alas, the problem with dealing with the Americans is that when things go wrong there's no supervisor you can talk to.

The scene concludes:

"Agent: I'm sorry, my supervisor says there's nothing we can do.

Jerry: Yeah, it looked as if you were in a real conversation over there.

Agent: But we do have a compact if you would like that.

Jerry: Fine.

Agent: Alright. We have a blue Ford Escort for you Mr. Seinfeld. Would you like insurance?

Jerry: Yeah, you better give me the insurance, because I am gonna beat the hell out of this car."

What puzzles me are the Canadians who, in reaction to this kind of behavior from the Americans, would be more inclined to demand that Jerry apologize for his comments about beating the hell out of the car (because it might damage the relationship with the rental place) rather than looking for a way to make an uneven exchange (in which one side has all the leverage) more even.

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  • The problem is that most of our trade (roughly 85%) is done with the USA, while they do about 15-20% of their volume with us (I'm too lazy to look up the latest figures, you might wish to check). We can't escalate since it would kill us, while only hurting them. The only real solution is to have more customers for our products so we could be in a position to escalate. I know volumes to China have been increasing, but I doubt we'll ever be in a position ever in this country where we could say we do less than 50% of our exports to the USA.

    By Anonymous Anonymous, at 11:30 AM  

  • Hi Declan: usually I don't bother to comment when I just agree with everything in a post...but this one demands that an exception be made.

    I am no economist - to be sure, and I certainly see where Sacha is coming from. But I do know that common advice for personal finances is to diversify, and Canada needs to do that. We need to become innovative in our trade practices. The US has provided this bottomless pit of insatiable consumerism and we've taken full advantage of that. Now, however, our laziness (in expanding our trade relationships) is costing us too much. We need to make decreasing dependence on the US market a priority...for many reasons.

    The saddest part is that just having this conversation would get us branded Anti-American by some...and around and around it goes...

    By Blogger Princess Monkey, at 11:37 AM  

  • sacha - Yes that's what I was saying about leverage. Short term, I think we could probably afford to escalate somewhat and see if they back down but it would have to be done cautiously.

    I do think that the U.S. is more 'sensitive' to trade damage then we are (because they are used to always getting their way in everything) so we have more leverage than the numbers would suggest.

    But long term, like Princess Monkey says, we do need to diversify. Even getting the percentage down to 50% would make a big difference to our leverage. I see no reason why we shouldn't be pursuing trade deals with various countries around the world - especially ones around our size. Korea would be a good start. Reducing / eliminating the remaining inter-provincial trade barriers would help as well.

    More generally we need to choose policy options which preserve our ability to act independently. Developing an east-west electricity grid would be one such action.

    By Blogger Declan, at 1:37 PM  

  • sacha - people keep forgetting that we have one thing the yanks really really really need and that is oil and gas.

    NAFTA is an utter failure and has been from the start. It has not been good for Canada and continues to just become more and more of an albatross as each year goes by.

    Canada should declare NAFTA null and void based on the US response to softwood lumber. They bargained in bad faiht and that nullifies the contract.

    Then we should start recouping the billins in illegal duties by slapping an export tax on energy products heading to the US and only the US. At the same time we should severely ramp up our sales of htose same products to China and any one else that wants to buy them. We might also want to revist energy sector ownership rules. Most of hte energy companies in Alberta are CDN subsidieries of US companies - why should the wealth of our nation flow to US corporations?

    By Anonymous Anonymous, at 5:05 PM  

  • i'm with you guys on this one. given a pattern of bad faith by our american friends, we void nafta, eliminate foreign ownership of energy companies and impose very stiff export taxes, oh say, tripling the cost of gas, oil, coal, hydro and related resources going south. it should be remembered that we supply more oil and natural gas to the u.s. than any other country. for too long it has just been easy to let american might dictate the terms of our economy, we need to diversify and take charge of our resources. canada should be saudi style rich, we have the supply, they have the demand. oil is their biggest addiction, let's start trating them like the junkies they are.

    By Blogger Lindsay Stewart, at 5:53 PM  

  • Well, I wouldn't go so far as voiding NAFTA, nationalizing oil companines or starting an all out trade war myself.

    I think the retaliation needs to be in proportion to the offense. Like Sacha says, we're not likely to win a trade war (really nobody wins a trade war, but we would lose the most) but at the same time I think we need to take a stand on principle to show the Americans that their actions have consequences, which could involve retaliatory tariffs on roughy the same scale as the softwood duties.

    Talking up our trade troubles with other countries the Americans are negotiating trade deals with is another form of leverage.

    Having said that I wouldn't void NAFTA, a trade agreement is not much good if one side is free to (and does) violate it with impunity, so it's certainly something we should raise in negotiations.

    Long term, we need to strengthen our ties with other countries and favour multi-lateral institutions (such as the WTO) over bi/tri-lateral ones where we are at a size disadvantage.

    By Blogger Declan, at 8:46 PM  

  • I did a little more research.

    As of 2004, we do 85% of our exports with the USA.

    Exports of good and services is 44% of our GDP.

    If the USA did a Cuba-style embargo of Canada, we'd be looking at a 30% drop of GDP AT LEAST in the short term. This would absolutely cripple the crap out of us.

    It doesn't matter whether we've got the oil, it doesn't matter whether we've got the natural resources, the fact is that if the USA wants to, they can absolutely crush the crap out of us, while we would only be able to inflict a minor recession on them.

    Even ultimately, if we bite our lips and refuse to export them natural resources that they need, they could just send in the troops.

    The real story here is that this country gave up its soverignty over 50 years ago after WW2 when we decided to take the easy way out and let the USA pay for our defence budget. This gives the USA the ultimate form of leverage, the last trump card in any sort of negotiation - physical threat.

    I hate to break this to you all, but our best strategy is to try to milk the best deal possible. If softwood lumber is the only thing that the USA is not playing a good game with, then on the balance of things, I think we've done well.

    But we'd do much better to diversify our trade. It won't happen, because changing status quo involves risk, and we are the most risk adverse people on the globe when it comes to these things.

    By Anonymous Anonymous, at 6:30 PM  

  • Due to the interdependent nature of our economies, a Cuba style embargo by the U.S. would cripple them too - it's not going to happen.

    The defense budget is irrelevant. The U.S. is not going to invade, and even if (in some parallel universe) they did, our odds of repelling them (which would be pretty good I think - not stopping the invasion of course, but mounting an insupportably costly insurgency) are dependent less on our military spending than on having a widespread distribution of gun ownership and people who know how to use them (the Swiss strategy), which is not really a question of budget as much as it is one of priorities.

    Defending an unguarded border thousands of kilometres long from the country which spends more on its military than most of the rest of the world's big military spenders put together and which has any number of long range (not that they need to be particularly long range) weapons of mass destruction to deploy is not really a logical proposition. The only real deterrent we could build would be nuclear weapons (which we could easily construct , I imagine), and I'm just not keen on a nuclear holocaust.

    Anyway, the other thing the U.S. has to worry about is global reaction. A trade war with Canada where the U.S. is clearly in the wrong is going to provoke anti U.S. protectionism around the globe, and make signing further trade deals a lot more difficult.

    Still, I take your point that in the grand scheme of U.S. - Canadian trade the softwood lumber dispute is relatively small and it is probably not in our interest (at this time) to upset the whole trade apple cart over this issue.

    Although, if we can use the dispute as justification/leverage to remove/ignore some of the elements of NAFTA we don't like (chapter 11 which gives foreign corporations the
    right to sue us for hypothetical lost profts, for example) then I'd be in favour of that.

    By Blogger Declan, at 12:15 PM  

  • Doug - not just oil, but uranium and water, too. Plus a lot of the Hydro energy gets sold Southward, and the lumber dispute has homebuilders in the States pissed. There's lots of ways to negotiate through this mess.

    By Blogger Thursday, at 2:16 PM  

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