Thread: Nafta Frays as Canada, Mexico Accuse U.S. of Flouting Rules

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Nafta Frays as Canada, Mexico Accuse U.S. of Flouting Rules
Oct. 13 (Bloomberg) -- Canada and Mexico are escalating their allegations that the U.S. is flouting the terms of the North American Free Trade Agreement in order to protect domestic producers.

Canadians are dropping what Prime Minister Paul Martin called ``the safe language of diplomacy'' and spurning new negotiations on a dispute involving U.S. export limits on Canadian softwood lumber. Mexico is publicly supporting the Canadians in the lumber case as it pursues its own grievance over a long-running sugar trade dispute.

The spats threaten to fray Nafta, the landmark 1994 accord that set up the world's largest trading bloc, and damage diplomatic relations with two of the U.S.'s closest allies.

``We've got two really big cases with huge political ramifications'' for the U.S., said Gary Hufbauer, a fellow at the Institute for International Economics in Washington. ``What's needed now is some kind of political settlement.''

Much of the U.S. policy on these issues has been dictated by domestic industries fearful of competition from cheaper foreign goods, Hufbauer said. President George W. Bush needs to intervene with domestic industry and ``knock some heads,'' said Hufbauer, author of the forthcoming book ``Nafta Revisited.''

Trade Summit

The grievances surfaced at a Sept. 30 trade summit in Vancouver between Mexican President Vicente Fox and Martin and boiled over in an Oct. 6 speech by Martin, who said the integrity of Nafta is being compromised.

``Where rules are established and agreed upon, they should be followed,'' Martin told the Economic Club in New York.

Martin says the U.S. is avoiding complying with rulings that require it to drop duties on $7.6 billion a year in lumber from Canada and return more than $4 billion in levies collected. Canada tried to negotiate a solution to the lumber dispute two years ago; it is now ruling out any further talks.

``If this was poker, we won the pot, and now the U.S. wants to negotiate with us over how to divide it,'' Frank McKenna, Canada's ambassador to the U.S., said in an interview. ``The time for negotiation has passed.''

Five days after Martin's speech, Canadian Revenue Minister John McCallum traveled to Beijing on a mission to find alternative export markets for Canadian oil and lumber. Canada, which ships 80 percent of its exports to the U.S., now wants new trade partners and may increase tariffs on American products to force the U.S. to give in on the lumber dispute, McKenna said. ``We do have leverage, and we'll use it,'' he said.

Similar Frustration

Mexico has expressed similar frustration, saying it won't accede to a World Trade Organization ruling this month against its tax on high-fructose corn syrup until the U.S. agrees to drop restrictions on Mexican sugar. Mexico has been trying to submit a dispute over sugar trade to Nafta since before Bush took office, but has been unable to get the U.S. to agree to terms for the case to be heard.

Martin and Fox say the U.S. is effectively ignoring Nafta rules that the U.S. itself demanded a decade ago, when it insisted on an independent tribunal to enforce the agreement. The U.S. counters that it has a different legal interpretation of the tribunal's rulings.

``The U.S. strongly disagrees with the allegation that we flout Nafta,'' said Neena Moorjani, a spokeswoman for the U.S. Trade Representative's office. ``While we have differing views with the Canadians with respect to the legal effects of these decisions, those differences are being litigated.''

U.S. Advantages

Working to the benefit of the U.S. is its importance as the world's biggest economy. The U.S. buys more than 90 percent of the oil that Mexico and Canada export and is a top market for products such as Mexican clothing and Canadian wheat and auto parts.

While both Canada and Mexico have tried for years to diversify their trading relationships, they have failed because of the attractiveness of the U.S. market and the transportation advantages of shipping to a country with a shared border.

``There is only one way to retaliate, and that involves shooting yourself in the foot,'' said Michael Hart, a professor of trade policy at Carleton University in Ottawa, who helped Canada negotiate its free-trade agreement with the U.S. in the 1980s. He said imposing tariffs on U.S. products would raise the price of those products, hurting Canadian consumers.

The U.S. may be starting to show some signs of bending: After a Nafta panel ruled against the tariffs the U.S. imposed on Canadian wheat, an independent U.S. trade panel decided that the U.S. industry isn't hurt by those imports, clearing the way for the duties to be lifted. U.S. and Mexican negotiators are also set to meet today in Washington to try to work out a suspension for U.S. duties on cement.

Softwood Lumber

The U.S. imposed tariffs on softwood lumber from Canada in 2002 after American producers complained that Canadian provinces give their companies below-market access to government forests. In August, a Nafta panel ruled that the duties violate U.S. laws.

The U.S. argued that the ruling didn't apply because it was superseded by a new determination from the U.S. International Trade Commission. The duties would stay in place, and no money returned, the U.S. announced.

Mexico has been trying to negotiate a solution to the sugar dispute since 1998, when it first called for an independent trade panel. Sugar growers in the U.S. say giving Mexican growers unfettered access to the U.S. market could destroy their price-support system and put them out of business.

To prevent that, the U.S. has refused to let an independent panel hear the dispute and withdrew altogether from negotiations with Mexico, leaving the two industries to try to hammer out a deal.

``The U.S. is exploiting a deficiency in Nafta,'' Hugo Perezcano, the trade ministry's legal director for international negotiations, said Aug. 24. ``It's as if the chapter to resolve disputes didn't exist.''

A lot of the sugar area within commuting distance of New Orleans and between there and Baton Rouge would be usable for housing. Land used that way can replace revenue from sugar and open a space for further imports.

QUOTE:
The U.S. may be starting to show some signs of bending:

Doesn't the U.S. ALWAYS Bend Don't worry El Presidente will do as you wish. He is very prone to peer pressure.