America’s NAFTA nemesis: Canada, not Mexico

NAFTA explained

The United States and Canada have one of the largest trading relationships in the world.

President Donald Trump had his first meeting on Monday with Canadian Prime Minister Justin Trudeau.

“We have a very outstanding commercial relationship with Canada,” Trump said at the news conference.

But the US-Canada trade relationship over the years has not been as smooth as you might think. There have been trade wars, retaliation, alleged dumping and job losses.

“Our commercial relationship is clearly very strong … but the relationship is strong,” said Stuart Trew, editor at the Center for Policy Alternatives Canada, a research group in Ottawa, the Canadian capital. This relationship has become difficult, despite the agreements we had.

Trump often criticizes Mexico and NAFTA, a trade agreement between the US, Mexico and Canada. But Canada is rarely mentioned.

However, there have been more claims of NAFTA disputes against Canada – mostly by US companies – than against Mexico. Even today, Canada has imposed tough tariffs on the United States, and the two sides have only just resolved their acrimonious dispute over meat.

Most leaders and experts emphasize that the trade relations between the two countries are very strong and mostly positive. But Canada and the US have had plenty of battles along the way.

Now Trump wants to renegotiate NAFTA, which will be high on the agenda for his meeting with Trudeau.

1. Canada has more NAFTA troubles than Mexico

Listening to Trump speak, you might think Mexico is a bad actor of NAFTA. But since NAFTA was introduced in 1994, there have been 39 lawsuits filed against Canada, most of them by American companies. Known in the industry as investor dispute resolution, it allows companies to resolve cases under a special panel of NAFTA judges instead of local courts in Mexico. , Canada or the United States.

There are only 23 complaints against Mexico. (For comparison, companies from both Mexico and Canada filed a total of 21 complaints against the US.)

And increasingly, Canada has become the target of American complaints. Since 2005, Canada has been affected by 70% of NAFTA dispute claims, according to CCPA, a Canadian research firm.

2. US-Canada lumber war

NAFTA isn’t the only headache area. In 2002, the United States imposed a tariff of nearly 30% on Canadian lumber, alleging that Canada was “dumping” its timber on the US market. Canada denied the claim, saying the tariffs had cost its logging companies 30,000 jobs.

“It’s been a very sour point in Canada-US relations for a long time,” said Tom Velk, an economics professor at McGill University in Montreal.

The dispute dates back to the 1980s, when American timber companies argued that their Canadian counterparts were not playing fair.

Whether Canada actually broke the rules is a matter of debate.

Canadian officials deny that the government is subsidizing companies that produce softwood lumber in Canada. American timber companies still allege it and a US Commerce Department report found that Canada subsidized timber companies in 2004. It did not say whether the subsidies would continue. .

Allegedly, Canada subsidizes timber companies because the government owns much of the land that is derived from the wood. That subsidy – due to Canada’s huge timber supply – has allowed Canada to price its timber below what American companies can charge.

The World Trade Organization eventually sided with Canada, rejecting the US claim, and the two sides came to an agreement in 2006 to end the tariffs.

However, that agreement and its subsequent renewal expired in October and the two sides are getting back together. The Obama and Trudeau administrations were unable to reach a compromise before Obama left office and it remains a contentious trade issue with American timber companies calling for tariffs again.

Related: ‘Without NAFTA’ We Would Stop Doing Business

3. Smoot-Hawley causes US-Canada trade war

Things got even worse during the Great Recession. In 1930, Congress wanted to protect American jobs from global trade. So the US has imposed tariffs on all countries that ship goods to the US in an attempt to shield workers.

It’s called the Smoot-Hawley Act. Today, it is widely accepted that this law made the Great Recession worse than before.

Canada was furious and retaliated more than any other country against the US, sparking a trade war.

According to Doug Irwin, Dartmouth Professor and author of the book “Seller Protectionism: Smoot-Hawley and the Great Depression”, “Canada was so furious that … they raised their own tariffs. for certain products.”

For example, the United States increased the tax on eggs from 8 cents to 10 cents (this is the price of the 1930s, after all). Canada retaliated by also increasing tariffs from 3 cents to 10 cents – a threefold increase.

Exports fell sharply: in 1929, the US exported nearly 920,000 eggs to Canada. Three years later, it has only shipped about 14,000 eggs, according to Irwin.

Related: Remember Smoot-Hawley: America’s Last Big Trade War

4. Canada’s sky-high tariffs on US eggs, poultry, and dairy

Fast forward to today. Smoot-Hawley has long since ceased to exist, but Canada continues to impose high tariffs on American imports of eggs, chicken and milk.

For example, some taxes on eggs are as high as 238% per dozen, according to Agriculture Canada. Some imported milk, depending on the fat content, is as high as 292%.

“They’re so terrible you can’t get them across. There are no American eggs in Quebec,” says Velk.

According to the Canadian Embassy in the US, the reality is much different. Canadian officials say that despite some stiff tariffs, Canada remains one of the top export markets for US milk, poultry and eggs.

The United States imposes tariffs on some goods coming from all countries, but they are not as high as Canada.

The tariffs continue to annoy some U.S. dairy and poultry farmers, some of whom are challenged to sell into the Canadian market, experts say. But they suspect much will change as the tariffs have been in place for decades.

Related: The Reagan Tariffs Trump Wants To Talk About

5. COOLer Heads and the Future of NAFTA

Despite these disputes, experts stress the commercial relationship remains one of the best in the world.

In fact, the two countries are so closely intertwined these days that when trade disputes arise, sometimes American companies will side with Canadian companies and against American lawmakers.

For example, Canadian meat producers oppose US laws that require them to label where cattle were born, raised, and slaughtered. Canadians said the law discriminated against their meat being sold in the US and brought the case to the WTO.

The WTO sided with Canada and last December, Parliament repealed the country of origin labeling law. American meat producers – whose business is tied to Canada – have indeed supported their counterparts in Canada, finding the regulation too burdensome.

As for Trump’s proposal to tear up NAFTA, many US and Canadian experts think that renegotiating or terminating the agreement is not worth it. The three countries that are part of the accord have such an adversarial relationship with each other that, in all likelihood, integration will be detrimental to trade and economic growth.

–Editor’s note: This story was originally published on August 11, 2016. We’ve updated it since then.

CNNMoney (New York) Originally published February 13, 2017: 11:11 AM ET America’s NAFTA nemesis: Canada, not Mexico

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