• Mike von Massow

Navigating Complex Trade Waters


Trade between countries is complicated - we even struggle with open trade between provinces in Canada. Trade is good for economies in aggregate but can cause disruption in specific segments if they are not competitive with industries in other countries. There are rules governing international trade and many countries have bilateral and multilateral agreements establishing specific access and rules for trade within those participants. The reasons disputes arise can be varied and it is important to understand that trade actions aren't always straight forward.


Countries can and do identify priority industries for protection from trade. They either do that within the international rules governing trade (with mechanisms for settling disputes) or they explicitly negotiate them into trade agreements. In Canada's case our supply managed industries are one that get a lot of attention with respect to protection. There are clearly arguments for and against this special protection but these are negotiated as parts of bigger trade agreements. There are currently complaints from the US that Canada is not honouring its commitments under the newly renegotiated Canada, US, Mexico agreement. It is important to recognize that these sorts of agreements are common and a complaint does not mean Canada is not meeting its obligations. The dispute settlement mechanisms are in place to ensure that countries are honouring their commitments but even those mechanisms aren't a guarantee that trade will go smoothly.


Canada has historically protected its supply managed sectors (dairy, eggs, and poultry). There are those that argue that this protection costs us access to markets in other sectors given the tradeoffs in negotiations. This may well be true and is a policy decision that governments make. These decisions can be driven by considerations of strategic priority sectors or by electoral considerations. It is important to understand that many governments support strategic sectors for a variety of reasons. The Americans complain about dairy access but their industry also receives support - it simply comes in a different form. Developing a level playing field is difficult as determining the specific impact of different types of programs in contentious. In the end the two countries negotiated access agreements (and Canada did the same with the European Union) and now need to live up to those commitments and others in the broader agreements.


Canada is not alone in taking action to protect industries, both agricultural and otherwise. The US has consistently levied countervailing duties against Canadian softwood lumber claiming unfair subsidization for Canadian producers. Canada has consistently won the argument in dispute settlement panels but the US has largely ignored those and continued to levy duties to benefit the US lumber industry. A short paragraph here does not do the issue justice but does highlight that there are priorities for protection on both sides of the border (here is a more detailed discussion). We also saw steel and aluminum tariffs under the guise of national security during the Trump administration. They were eventually removed.


The US has also been found in violation of trade laws in other agricultural sectors. The initiative to introduce mandatory country of origin labelling (COOL) cost Canadian producers approximately $1 billion per year. The World Trade Organization ruled the COOL rules violated trade law and when faced with significant sanctions the US repealed them. It is worth noting that, like with protection for supply management in Canada, there was internal opposition to the rules in the US as well. It is worth noting that there was no suggestion that Canada was being unfair in its trade practices with respect to cattle and pork and the US can, and does, use voluntary labelling. The voluntary labelling provides consumers with clarity (although product does not usually have labels stating it is Canadian, Australian, or other country's product) and the US still imports a lot of meat and live animals from Canada. The US also exports to Canada. The real issue with COOL was not shifts in consumer demand but rather the logistical challenges raised by the labelling requirements. Packing plants that processed Canadian cattle need to segregate animals and product to facilitate labelling. Many stopped just because the challenge became too onerous. The approach was an effort to protect the domestic industry. There are now calls to reintroduce COOL. The calls are coming from the cow/calf sector of the US beef industry which is struggling with low prices and decreasing numbers.


Trade access has also been wielded as a political weapon. It can be argued that Chinese actions on Canadian canola and pork were in retaliation for Canada's arrest (at America's request) of Meng Wanzhou. The weaponization of trade to achieve political goals can also be extremely disruptive. Smaller, export oriented countries like Canada are particularly vulnerable to these sorts of actions.

Trade benefits both countries. Increased trade is not painless - there are often sectors that are hurt in the adjustment. International trade law does provide for the protection of strategic industries - other countries don't like supply management but it is legal under international law. Tariffs on softwood lumber, steel, and aluminum raise prices for American consumers. These are policy choices driven by strategic priorities or electoral considerations. It is always worth having a discussion about opening trade but it is critical to consider the bigger picture when highlighting an individual issue or irritant. Individual issues are not always what they seem.



#keywords

Recommended citation format: von Massow, Michael. "Navigating Complex Trade Waters". Food Focus Guelph (114), Department of Food, Agricultural and Resource Economics, University of Guelph, May 31, 2021.