The Trump administration released a long list of negotiating objectives last week, as it readies to re-open talks over NAFTA in mid-August.
But one goal, in particular, is emerging as an issue that could significantly complicate negotiations over both the free-trade agreement and Canadian lumber exports to the U.S.
That’s Washington’s request to eliminate Chapter 19 of the NAFTA treaty, which establishes a binational panel to settle trade disputes.
READ MORE: NAFTA: Donald Trump’s wish list and closing the book on Chapter 19
The process means Mexico and Canada can appeal decisions made by the U.S. to impose duties on their products, and vice versa.
Though lumber is not part of NAFTA, Canada and the U.S. have often used the panel to resolve disagreements on the issue.
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Five such disputes in over 30 years have gone through a dispute resolution mechanism. Canada’s success rate using this process may be part of the reason why the Trump administration is eager to eliminate it, Riyaz Dattu, a lawyer with Toronto-based law firm Osler, previously told Global News.
The Trudeau government appears to be signalling that removing the panel from NAFTA is a non-starter for Ottawa.
Prime Minister Justin Trudeau has repeatedly told reporters he won’t comment publicly on Ottawa’s stance ahead of the start of negotiations on Aug. 16. But a highly placed government source has told the Globe and Mail that Trudeau is ready to walk away from the talks over the matter.
“A fair dispute-resolution system is essential for any trade deal that Canada signs on to,” the prime minister told reporters today.
That has implications for the negotiations over softwood lumber, too.
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After meeting with Trudeau this morning, B.C.’s new premier, John Horgan, said Canada needs to get the lumber dispute “off the table” before the start of the NAFTA renegotiations so that Foreign Affairs Minister Chrystia Freeland can focus on “the larger challenge of the broader trade agreement.”
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But the emerging divide between Trudeau and Trump over Chapter 19 could do just the opposite.
“The risk is if we get into… this period when we’re renegotiating NAFTA, any softwood lumber settlement may just have to wait until NAFTA gets renegotiated,” Mark Wilde, an analyst at BMO Capital Markets, told Global News.
The current expectation is that the dispute will be resolved by the end of the year, said Peter Glossop, a foreign investment lawyer and partner at Osler. But if the lumber issue gets tangled up with the discussions over NAFTA, things could drag on for longer, he added.
Washington has slapped two punitive tariffs, worth nearly 27 per cent overall, on most U.S.-bound softwood lumber from Canada in recent months.
READ MORE: Jobs on the line as U.S. slated to add new softwood lumber duty
This happened after months of bickering following the expiration of the 2006 Softwood Lumber Agreement (SLA), on October 12, 2015.
Under the SLA, which provided stability and predictability to the industry, eastern Canadian lumber producers were subject to quotas ranging from 30 to 34 per cent and tariffs of
2.5 to five per cent depending on the price of lumber. Western Canadian producers faced no limits but an export tax between five and 15 per cent depending on lumber prices.
The Conference Board of Canada released a report in March estimating that Canadian softwood producers would pay $1.7 billion in duties a year and cut 2,200 jobs and $700 million in U.S. exports over the next two years before the dispute is settled.
On June 1, the Liberal government announced $867 million in financial supports to help lumber producers and employees weather the impact of U.S. tariffs on Canadian softwood exports.
The package includes loans and loan guarantees to help cushion the blow for forestry companies and to help them diversify away from the U.S. by exploring new export markets.
The U.S. lumber industry has long maintained that Canadian producers enjoy an unfair advantage because most of their Canadian counterparts operate on public land. In the U.S., by contrast, producers must pay to harvest trees on private land.
— With files from the Canadian Press
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