U.S. Canadian Relations in Need of Further Repair

Rocky Road: U.S.-Canadian Relations in Need of Further Repair, Now that Both Sides Make Concessions on Devils Lake Dispute

• Longstanding, often mean-spirited U.S.-Canadian trade disputes over lumber, wheat and cattle have soured relations between the two nations, highlighting a duel between perceived U.S. protectionism and Canadian belligerence.

• Issues of the environment and defense have added to trade irritants, making the mixture corrosive to amicable U.S.-Canadian relations.

• Though the unifying factor of the Cold War has dissipated, the menace of international terrorism and the importance of current arrangements for free, bilateral trade should transcend petty differences between the two nations.

In the midst of a contentious dispute over a planned water diversion project, an agreement was reached by U.S. and Canadian authorities on August 5 to install a filtration system preventing pollutants and invasive species originating in North Dakota’s Devils Lake from entering Canadian waterways. The lake’s near-uncontrollable flooding prompted proposals by U.S. authorities to divert some of its overflow into Canada’s Lake Winnipeg watershed. However, Canadian critics argue that the presence of pollutants like salt, phosphorous and mercury in the U.S. water would be enough to contaminate Canada’s waterways, upsetting the natural balance of the local ecosystem. Authorities have begun draining the lake, but the construction of the filtration system will take longer. Though this issue was resolved amicably, it is just one of many disputes currently bedeviling U.S.-Canadian relations. Unfortunately, many of these conflicts are not so conducive to easy solutions.

A Plethora of Concerns
From mad cow to lake diversions to missile defense, disputes between the U.S. and Canada indicate that relations between the two North American nations are far from perfect. Beginning in 2001, new economic or political crises have been triggered almost every year. The buildup of these standoffs engendered a mutual tit-for-tat mentality, which is delaying resolution of various ongoing disagreements, tangling economic and political issues and making it progressively more difficult to achieve diplomatic reconciliation.

The U.S. needs its traditional allies more than ever as it attempts to fight terrorism and match China in its quest for new sources of energy, just as Canada needs to maintain a productive trade relationship with its wealthy southern neighbor for its own economic prosperity. In the words of the 105th American Assembly, a body of 70 Canadians and Americans that met in New York this last February under the auspices of Columbia University and the Woodrow Wilson International Center for Scholars, “each country has a real interest in enhancing the influence it can gain in the other as a basis for mutual understanding and strengthened cooperation” in order to “address the most daunting global problems.” Though the clear black-and-white international relationships of the Cold War have dissipated, taking with them strong U.S.-Canadian defense ties based on common interests, the threat of international terrorism has replaced the “red menace” as a universal concern, before which petty differences should disappear.

Lumber Wars
The earliest trade dispute to surface in recent years concerns Canadian softwood exports to the U.S. Softwood includes lumber from pine or fir trees and is often used in housing construction. Currently, Canadian imports make up a third of the U.S. lumber market, totaling $10 billion a year; they have been essential to the housing and construction markets in both countries. Despite the fact that the U.S. started imposing countervailing duties on softwood imports 25 years ago, the issue was brought to a boil only in 2001 as the Canada-U.S. Softwood Lumber Agreement, which upheld quotas for Canadian imports, was due to expire, prompting fears that the U.S. would be inundated with cheap lumber from its northern neighbor. The U.S. Coalition for Fair Lumber Imports filed a complaint with the U.S. Department of Commerce in May 2001, alleging that certain Canadian government regulations amounted to a subsidy of softwood exports, and allowed Canadian producers to sell the lumber below world market prices. This complaint was upheld by the U.S. International Trade Commission (ITC), and the Commerce Department imposed a tariff of 27 percent on lumber imports in 2002. Since the imposition of this impost, the U.S. Customs Service has been collecting duties from Canadian exporters and holding the funds until the dispute is resolved.

A number of rulings have been handed down on this issue by panels from the North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO) since 2002. These findings have largely undermined the U.S. case for imposing the tariffs and have mandated reductions in tariff surcharges. U.S. authorities have complied with the recalculations of the duties, but decisions striking down the rationale for the tariffs have been appealed, and the dispute is unlikely to be resolved until next year at the earliest.

Though the former head of the Alberta Forest Products Association, Garry Leithead, has called the dispute a “street fight,” U.S. authorities seem willing to moderate their initially hard-line positions, with the new head of the Coalition for Fair Lumber Imports, Steve Swanson, stating in a press conference in June that “a negotiated settlement is the best answer.” In an interview with COHA, Parker Hogan, the Director of Public Affairs at the Alberta Forest Products Association, concurred with Swanson’s assertion, saying that a “negotiated solution” would be best for both sides, but citing the existence of “fundamental disagreements between the [Canadian lumber] industry and the United States” and cautioning that the eventual resolution of the dispute “will be a long process.” He also stated that the cumulative cost of the dispute to the Canadian lumber industry since 2001 is an impressive $4.6 billion.

Three days of negotiations in Washington D.C. between Canadian and U.S. representatives were declared “inconclusive” on July 20 as Canadian representatives lamented Washington’s tough stance. A U.S. proposal to replace countervailing duties with a lumber export tax fell flat due to Canadian opposition, and a new round of talks are scheduled for August 22 in Ottawa. Nevertheless, a spokesman for the U.S. Trade Representative remained optimistic, telling the Alberta Daily Herald-Tribune that the talks “gave us a better understanding of each other’s positions.”

Larger Problems
The rulings on softwood have exposed flaws in U.S. trade policy as a whole. The Byrd amendment, which was passed by the 106th Congress in 2000 as part of the Agriculture Spending Bill, allows the government to distribute revenues from antidumping fines directly to affected U.S. corporations. A September 2004 decision by a WTO panel ruled this measure unfair, as it strongly encouraged numerous (and in some cases, groundless) antidumping lawsuits by U.S. companies. In November, the WTO authorized the EU and Canada, along with Brazil, India, Chile, Mexico, South Korea and Japan to impose sanctions on strategically-chosen U.S. products in retaliation for Washington’s refusal to repeal the amendment. The EU’s and Canada’s tariffs took effect May 1. Canada’s penalties of 15 percent affect U.S. exports of cigarettes, oysters, pigs and fish. Japan plans to impose its own 15 percent tariff on U.S. steel products, to take effect in September. Canada has also appealed to the WTO to impose $400 million of further retaliatory sanctions in direct response to U.S. tariffs on softwood lumber, but the international body has postponed its decision for the summer. The outcry over the controversial legislation exposes large flaws in U.S. policy that go some way to legitimize and exacerbate Canadian rancor over this and other trade irritants.

Amber Waves of Grain
In a similar trade dispute over spring wheat, a NAFTA panel ruled in early June that, contrary to a 2003 ITC decision, North Dakota farmers are not harmed by Canadian imports. The ITC ruling had led to tariffs on Canadian products of 14.15 percent. However, the ITC now has 90 days to revise their findings and reintroduce their case. Nevertheless, as critics point out, the Canadian Wheat Board, which represents Canada’s wheat farmers, has won 14 trade rulings on this issue from international trade bodies. The wheat board’s chairman, Adrian Measner, told the Stratford Beacon-Herald in June that the lengthy list of complaints brought against Canadian farmers amounted to “trade persecution” by the U.S. In light of the overwhelming number of rulings against the U.S., the Board now wants the U.S. government to help defray the estimated $15 million spent fighting groundless U.S. complaints. This trade conflict promises to be as drawn out as the dispute over softwood.

Cattle Crossfire
The U.S.-Canadian cattle saga began in May 2003, when Canadian beef was banned after the first Canadian case of mad cow disease, or bovine spongiform encephalopathy (BSE), was confirmed. This invariably lethal condition affects humans who consume infected meat, causing a slow deterioration of brain tissue. The subsequent discovery of the first U.S. case of mad cow in December of 2003 led to a further degeneration of the situation, especially because the cow was traced to an Alberta farm. The U.S. finding led to a 53-country ban of U.S. beef imports, including Japan, the largest U.S. foreign market for beef, at $1.2 billion annually. According to a Kansas State University study, 2004 estimates of total U.S. revenue lost from the ban ranged from $2.9 to $4.2 billion.

Following the January 2005 discovery of two more cases of BSE in Alberta cows, the latest round of mad cow maneuvers took place this spring, with multiple parties competing for influence. For example, as the U.S. Department of Agriculture planned to loosen restrictions on cattle trade with Canada on March 7, a federal judge in Montana issued an injunction against the USDA on March 2 at the behest of R-CALF, a U.S. cattlemen’s group. The day after the judge’s ruling, the U.S. Senate also voted to block the revival of the cattle trade. These actions provoked splenetic anger from Canadian cattlemen and U.S. meatpackers, whose businesses were severely hurt by the trade ban. In fact, in mid-April, 24 organizations representing the interests of Canadian ranchers urged Ottawa to seek redress through NAFTA or the WTO for what they view as mere protectionist posturing by the Americans. In mid-June, Alberta Premier Ralph Klein demanded the border be reopened, calling the entire dispute “nonsense.”

To complicate matters further, a second U.S. case of BSE was confirmed in June. The animal in question was native, and suffered from a different strain of the brain-wasting disease than in the first case, indicating that the infection did not come from Canadian sources. However, the discovery highlighted the severe shortcomings of the U.S. testing regime, which currently checks approximately one percent of the 35 million cattle slaughtered in the U.S. each year.

Despite the inadequacy of these precautions, the 9th U.S. Circuit Court of Appeals voted to open the northern border to cattle imports on July 15, lifting the ban on Canadian beef and overruling the federal judge’s injunction. A trial to determine the fate of the injunction, which was originally scheduled for July 27, was indefinitely postponed pending a review of the circuit court’s written rationale for lifting the ban. Canadian ranchers and U.S. meatpackers were elated over the decision, though R-CALF could still appeal the ruling. The first cattle exports from Canada crossed into the U.S. on July 18th.

Deep Waters
Yet another border dispute over the planned diversion of overflow from Devils Lake in North Dakota to a Canadian watershed was recently resolved. The project was scheduled to begin operation this summer, but after strenuous protests by the Canadian government, operations were stalled until the terms of an agreement between the U.S. and Canadian governments could be fulfilled. This pact, which would install a filtration system to rid water of pollutants and aggressive alien species, was heralded by Manitoba Premier Gary Doer, one of the chief negotiators, as “a positive development.” The deal was brokered by the White House Council on Environmental Quality, and allowed Canadian scientists to test the water in Devils Lake on August 2 to see if it really posed a significant threat to Canada’s waterways. Critics of the plan argued that pollutants and alien organisms would upset Canada’s ecosystem, but the proposed filtration system seems to have allayed these fears. North Dakota residents are eager that the diversion proceed, as 350 homes have had to be relocated as a result of Devils Lake’s uncontrollable flooding.

The 1909 Boundary Waters Treaty set up the International Joint Commission to arbitrate nautical disputes between the two countries, but when the U.S. offered to refer the Devils Lake project to the IJC in 2003, Canada refused. Canadian officials now claim that the proposal has changed in the last two years and that the implications of the situation were not fully understood. Nevertheless, this reluctance to take advantage of international negotiating mechanisms cost Canada dearly and eventually led to this summer’s impasse.

In fact, the Devils Lake issue has generated considerable diplomatic rancor, especially within the last two months. On June 2, the North Dakota Supreme Court ruled that the diversion could proceed despite a suit brought by the province of Manitoba and revelations that the effects of the venture would be detrimental to the environment. The decision angered Manitoba MP Pat Martin, who told the Canadian Press that Washington’s actions amount to “blatantly ignoring” Canadian concerns. However, diplomacy triumphed at the eleventh hour and the matter seems all but resolved.

Political Divergences
Economic disputes have inevitably become intertwined with political disagreements between Washington and Ottawa. In 2003, Canada’s well-publicized decision not to support the U.S. invasion of Iraq strained a once solid defense relationship, and the added insult of Canada’s refusal to contribute to President Bush’s missile defense initiative last February amounted to a “blunt rebuff” of the U.S. president, according to the Prince Edward Island Guardian. The initiative would install a North American ballistic missile shield through the Cold War relic of the North American Aerospace Defense Command (NORAD) for the benefit of both the U.S. and Canada.

Though Washington has expressed approbation of Canadian troops sent to Afghanistan and Haiti, it has been less than pleased with Canada’s refusal to commit troops to Iraq. However, in light of Martin’s clear refusal to support the invasion from the outset, the administration had no excuse for surprise.

Official Positions
Though official diplomatic relations between the two neighbors seem normal enough, definite strains are permeating the U.S.-Canadian relationship. According to newly-appointed Canadian ambassador to the U.S. Frank McKenna, Washington should not have been surprised by Martin’s missile defense decision. In a statement to the press on March 2, McKenna cited Canadian “outrage” over the ongoing softwood and cattle disputes as partial justification for rejecting Bush’s defense plan. In fact, he conceded that the decision can accurately be “construed as the direct result of letting fester” the economic disagreements.

For their part, Martin and Bush have presented something approaching a united front; in a press conference during the Crawford Summit in late March, Bush acknowledged the existence of “differences,” but denied that differing viewpoints precluded “cooperation” or “finding common ground.” The American Assembly at Columbia University begs to differ, asserting in its recent report that “Canada is losing its influence in Washington.” Such a serious charge must stem from deeper “differences” than either side cares to officially acknowledge.

Future Repairs
The gravity of the numerous economic and political conflicts between the U.S. and its northern neighbor demands far more attention and goodwill, as well as more drastic conciliatory action by both countries than is currently being offered. A conflict that started over a minor irritant like the softwood lumber dispute can pick up momentum from a cattle ban and missile defense decision and become a trade war. It is fast evolving into a diplomatic imbroglio as well. If Washington does not make at least some symbolic concessions in its arrogant support of narrow trade interests, and Canada refuses to understand U.S. concerns like chronic flooding in North Dakota, this indispensable relationship will further deteriorate.

At this point, relations could be successfully mended by a mutually satisfactory agreement over the Devil’s Lake issue and some U.S. concessions concerning commercial disputes. Both sides should realize that the U.S.-Canadian relationship is of supreme importance to both countries in terms of economics, diplomacy, security and immigration; it is well worth preserving. Mutual understanding of this fundamental fact should pave the way for true cooperation in the future, particularly if Washington – whether under Democratic or Republican control – can alter its attitude that, when it comes to ties with Canada, familiarity breeds contempt.

This analysis was prepared by COHA Research Associate Sara Evans.

August 8, 2005

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