NAFTA & Inter-American Trade Monitor
Produced by the Institute for Agriculture and Trade Policy
With bilateral trade of $262 billion in goods and $69 billion in services and investment income in 1995, the United States and Canada are the world's biggest trading partners. Despite the Canada-U.S. Free Trade Agreement (1989) and the North American Free Trade Agreement (1994) disputes in areas including wheat, dairy, poultry, cultural investments, softwood lumber, salmon, steel, potatoes, wool, and trade with Cuba persist.
Canadian dairy, poultry and egg producers fear that a NAFTA dispute resolution panel may not vindicate Canada's conversion of import quotas on their products into supply management tariffs. Canadian officials may get a first look at a confidential preliminary panel report by mid-July, though the report will not be made public until August. Canada maintains that it may convert quotas to tariffs, as provided by the General Agreement on Tariffs & Trade, while the United States argues that Canada gave up this right by signing on to NAFTA. According to a Canadian economic impact study, the Canadian economy would lose 138,000 jobs in agriculture and food processing if the U.S. forces open its market for dairy, chicken, turkey and eggs.
The panel can rule that the tariffs are legal or illegal, but is rumored to be considering a "third option:" finding that the tariffs are legal but not in the spirit of NAFTA, and recommending negotiation of a political settlement that would provide freer access to Canada for U.S. dairy, poultry and egg producers and to U.S. markets for Canadian peanut and sugar producers. Canadian farmers oppose the third option, since one of NAFTA's advantages was that trade disputes would be settled according to laws rather than according to the political power of the United States.
That political power is evident in the dispute over wool suit exports by Canada, raised in U.S.-Canadian trade talks in June. U.S. Congressional members from districts where wool suit and fabric plants are located want legislation directing re-negotiation of the wool- products tariff preference level (TPL) under NAFTA. Canadian officials object to any reconsideration, pointing out that Canada's TPL for wool products actually shrank under NAFTA, and that the bilateral trade balance in textiles is in the United States' favor. The U.S. Trade Representative's office acknowledges that Canada's wool exports are legitimate, but have raised the issue several times because the imports are creating "a real political problem" and potentially undermining support for NAFTA within the United States.
While the United States and Canada reached an agreement to limit Canadian softwood lumber exports, British Columbia lumber mills halted U.S. shipments altogether in June, fearing the imposition of penalties for exceeding the duty-free export quota. U.S. buyers have held off purchasing until the July 1 beginning of the next quarter, causing softwood lumber prices to plummet from $277 per thousand board feet on June 7 to $237 on June 20. Industry executives predict that the market turmoil will subside as Canada assigns company-by- company export quotas.
In another agricultural trade development, Canada will begin allowing U.S. hog producers from 24 pseudorabies- free states to export hogs to Canada without a prohibitively expensive 30-day quarantine. United States barriers to Canadian hogs, a countervailing tariff calculated to offset Canadian subsidies, have fallen 1.34 to .45 cents per pound.
Aviva Freudmann, "Free Trade May Take Time to Realize," JOURNAL OF COMMERCE, June 24, 1996; Aviva Freudmann, "Turmoil Hits Lumber Trade," JOURNAL OF COMMERCE, June 24, 1996; Barry Wilson, "Farmers Angered at Talk of NAFTA Compromise," THE WESTERN PACKER, June 20, 1996; "Canada Tells U.S. to Heed NAFTA Rules, Not Claims by U.S. Wool Group," INSIDE U.S. TRADE, June 21, 1996; Aviva Freudmann, "A Woolly Battle Along the Border," JOURNAL OF COMMERCE, July 3, 1996; Courtney Tower, "Canada to Lower U.S. Hog Barrier," WESTERN PRODUCER, June 6, 1996; Ian Elliott, "Canada's Resolve Toughened in Market Dispute With U.S.," FEEDSTUFFS, May 27, 1996.