How to temper protectionism in Trump’s trade world

TheGlobeandMail.com – ROB/Commentary
Feb. 02, 2017.   PAUL MOEN

Paul Moen is a principal at Earnscliffe Strategy Group and an international trade lawyer

The North American free-trade agreement is on the table.

There are protectionist temptations on Canadian softwood lumber flowing south, and U.S. drywall flowing north. These events, as well as our shared interest in infrastructure and job creation, may provide a unique opportunity to explore a much-needed change in a technical area of international trade known as anti-dumping – a change that considers the impact of anti-dumping action on workers and consumers on both sides of the border.

Anti-dumping rules protect domestic producers from imports priced at levels below the home market or cost of production. If unfair dumping causes harm to competing businesses, governments may impose duties to offset the injury, subject to rules-based dispute settlement mechanisms. These tribunals operate under the authority of such entities as NAFTA and the World Trade Organization (WTO).

In practice, however, there tends to be a mismatch between the offence and the corresponding penalty. In almost all cases, the duty levels exceed the extent of the harm. This gives domestic producers a windfall of protection, imposes higher costs on users and consumers, and results in a net loss to the economy.

An example can be seen in the perennial bilateral tussle over softwood lumber. In several rounds of the lumber dispute, the U.S. consistently imposed anti-dumping (and countervailing) duties that overprotect U.S. lumber producers and unnecessarily raise the cost of residential construction and the price of homes for U.S. consumers. U.S. producer interests outweighed those of the construction industry and of consumers at large, despite Canada challenging U.S. duties (and winning repeatedly) under NAFTA and WTO panels.

Of course we should work to avoid a protracted dispute through a new softwood lumber deal that reflects the best interests of Canadians. But should the United States proceed with duties, we could appeal to Americans’ self-interest by pushing for a public-interest requirement.

Canada has recently shown leadership on the issue. In the drywall dumping case, Canada called for an inquiry into whether imposing anti-dumping duties would be in our best interests. While Canada’s international trade tribunal found that U.S. drywall was causing harm to Canadian producers, it also ended up making several recommendations to ensure that the construction industry was not disproportionately affected (particularly contractors already bound by contracts reflecting previous preduty supply-chain costs) – and especially in the Fort McMurray market, as the community is still rebuilding from a catastrophic fire last year.

In a groundbreaking move, the tribunal recommended relief for the Canadian parties adversely affected by the anti-dumping duty, despite the fact the duty itself is intended to help Canadian producers. It also dramatically cut the initial level of duties. Had the initial level of duties been imposed, drywall prices would have risen far above any amount needed to protect the domestic industry, drywall contractors would have not been able to make short- to medium-term contractual commitments, thousands of jobs would have been lost, and housing prices would have spiked.

The Finance Minister is considering these recommendations, but he did demonstrate Canada’s willingness to fast-track a “public interest” assessment of anti-dumping duties for the construction and housing sectors. Public-interest mechanisms have been used in Canada, but only in rare cases. This, however, is the model Canada ought to embrace.

The practical effect would be to reduce the duty to one that only corresponds to harm suffered, not more – a so-called “lesser duty” in the parlance of trade law. The Trump administration may also be receptive to a “lesser duty principle,” given the branding of the new President as a champion of the little guy – in this case home buyers and construction workers – whose interests are sacrificed if a few vocal massive lumber producers win the day.

As our two countries look to fine-tune our bilateral trade framework, we would be wise to explore a common public-interest requirement to ensure anti-dumping duties – or at least unnecessarily high duties – do not unintentionally hurt the public at large. This is particularly important if public harm has a dousing effect on economic growth. Europe has a “community interest” provision in its anti-dumping law; it is time for the two countries sharing the world’s largest trading relationship to follow suit.

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