Friday, August 26, 2005

Call And Response: Softwood Retaliation

Above the 49th parallel, the rhetoric from (surprisingly) both sides of the political aisle has become heated in response to the American intransigence over softwood imports. The US, having told a meeting of first ministers (via their ambassador) that Canada should quiet down and negotiate, has been relaxed and unconcerned about possible trade ramifications. While Canadians fret over the end of North American treaties and a deterioration of trust in joint declarations with the US, the US has carried on with a business-as-usual attitude.

The problem facing Canada is: What next?

What is the appropriate response to the actions of a larger opponent who neither sees you as a threat, nor seems to notice your existence?

One suggested response to the softwood dispute sees Canada tacking huge tariffs on California wines headed for the northern border. This idea seems plausible, given the mulitude of wines stocking Canadian shelves and the wide range of substitutes and replacements for the Cali wine. The problem is that the US government is not under pressure from California saw mills to apply softwood tariffs, and it is not sensitive to the demands of Californians, regardless. California, on a federal level, is Democrat country, and the administration knows it. President Bush has never even visited San Francisco in either of his presidential terms, and has no plans to do so. Striking at the heart of the Napa Valley with tariffs might put a dent in the bottom line of the extras from "Of Mice And Men", but that mosquito bite will not register in the Red States that Republicans are banking on to re-elect them next year in the senate.

A more interesting retaliation tactic has Canada "embarrassing" the administration through a New York Times advertising assault: A propaganda campaign designed to humiliate the administration into submission. The logic is that Americans are simply unaware of their governments' actions, and that a full fledged expose' would start a media avalanche that ends in the dropping of Softwood tariffs. The problem is that a media campaign with a target market of people already disillusioned with the Bush administration will have minimal impact. If these same readers failed to stop their own country from going to war, would they think their efforts on behalf of Canada would succeed? Probably not. They would check their schedules and see that lounge singer they love is playing at that quaint cafe in the Village the same night as the "Save Canadian Lubmer" protest.

Then there is the nuclear option: Oil. Canada has it. The US wants it. For our federal government, oil has never been off the table in terms of trade leverage and in public communications and in trade negotiations, it never should be. Oil, whether special interest groups like it or not, is a threat that has the power to unhinge the US from its negotiating positions. In today's markets, we may not have the ability (politically or logistically) to direct all of our imports away from the US or impose massive tariffs, but we can take actions that will compromise the US' energy supply from Canada while keeping our oil exports expanding. The answers to our problem? The subcontinent and China. The CIA has only recently recognized that Alberta has the second biggest oil reserves behind only Saudi Arabia and the huge oil fields of the coast of British Columbia are money in the bank.

The prospect of interrupting oil supplies also rears its head in the far north, where the US is planning the drilling of Alaskan oil to alleviate American dependence on foreign oil. The problem for the Americans is that all of the proposed pipelines go through Canadian soil and that means leverage at the bargaining table. While the government has struck deals with the Natives of the Mackenzie River Delta, it could simply hold up building the pipeline until softwood tariffs are dropped. This could be a hot button issue in the House this fall as there is scheduled to be a vote on the proposed drilling. Canada might use this opportunity to draw attention to softwood while Republicans face a potential huge political loss going into an election year.

One viable option is: Canada should begin to trim future participation of the US in investment deals on the oil patch where all else being equal, India and/or China present a competitive bid.

The expansion of Canada's 44B oil and gas industry and an expanding market in the east present an interesting prospect for the Canadian economy. If Canada can expand its oil and gas exports to the east, it could begin to build profitable trade relationships building on that one industry. Valuable trade relationships could be forged, preferable with India, a country with a shared history and a similar value system to Canada. And with human capital in British Columbia providing a valuable link to both nations, Canada has only to push open the door to expanded trade with both nations.

In the long run, Canada should see that the problem lies not only in the US' lack of honour in trade agreements, but also our dependence on the US. While Canada manages to keep a low but positive profile on the world stage, it has failed to turn that into a commercial advantage and suffers from a lack of diverse trading partners. While most countries would cringe at a 85% single source export market, Canada has sat on its trade laurels since NAFTA's inception, signing few trade deals of significance. As a result, Canada has been vulnerable to change in US government policy-policy from a country that has strong protectionist impulses at the best of times.

The solution is mult-faceted and complex, but we need to become part of other trading blocs. One key bloc that is maturing and growing in the most dynamic region of the world is ASEAN. Canada's own Westcoast has numerous ties with the Far East, and would make a natural fit a Pacific trade partner to this expanding group. Opening southeast Asia to Canadian trade would mean vast resources of markets and people for Canada, and a reciprocal market for those in Asia. The next trading bloc that Canada needs to make inroads with is the European Union. Again, Canada has numerous ties to Europe (and is frequently lumped in with Western Europe on all kinds of issues) but has failed to turn those ties into trading relationships. While it would be unrealistic to think in terms of acceptance into the EU, a strong trade treaty would see Canada as trading partner with access to both North American and European markets.

In the short term however, Canada has to be ready and able to anihilate American resistance to abiding to international law with concentrated action in direct retaliation with a shot across the bow to set the tone for future Northwest Passage talks (which incidently would be the loophole in a Canadian decision to block a oil pipeline from Northern Alaska). In the long run, Canada has to start diversifying its trade away from the US, and into growth markets with oil and gas markets initially, and later with comprehensive trade agreements.

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