Lumber Deal Welcome, Demonstrates New Focus on Boosting North American Competitiveness

April 28, 2006

Statement by Thomas d’Aquino
Chief Executive and President
Canadian Council of Chief Executives
April 28, 2006

The deal announced yesterday to resolve the long-running trade dispute over softwood lumber does more than bring to an end an exasperating and destructive commercial issue. It both demonstrates the value to Canada of the North American Free Trade Agreement (NAFTA) and suggests a new awareness of the need for governments and businesses on both sides of the border to work together in addressing global challenges.

Whatever its flaws, the NAFTA provides a mechanism for settling trade disputes that works better for Canada than the broader process available under the World Trade Organization (WTO).  In the softwood dispute, NAFTA panels have generated consistently stronger and clearer decisions in Canada’s favour than their WTO counterparts.

No trade deal is perfect, but the international rule of law does strengthen the hand of smaller countries that come into conflict with more powerful ones. Neither the WTO nor the NAFTA can trump the domestic politics of the United States, but they have given Canada’s negotiating position more weight.

Without the relentless parade of findings from NAFTA panels, there is no chance that Canada could have won as positive a deal as it managed to get this week on softwood lumber. NAFTA cannot guarantee that Canada will get everything it wants every time, but the softwood lumber deal shows that NAFTA’s rules and processes do have a meaningful impact.

What is most important about the softwood lumber deal is not the resolution of a troubling sectoral dispute, but the signal it sends about the new realities of global competition.  Even in the industry in which Canadian and American producers have battled most tenaciously, there is now a clear recognition that the real threat to investment and incomes does not come from within North America.

When Canadians first contemplated the idea of a comprehensive free trade deal with the United States in the 1980s, the great fear was that our country could not compete, and that tearing down protective tariff walls would gut our economy. The transition was tough, but the strength of Canada’s economy today – with unemployment at its lowest level in three decades and a trade surplus more than five times as large as it was when NAFTA took effect in 1993 – shows that our leap of faith has paid off handsomely.

In short, free trade has worked, but the nature of the challenge is changing. Today, Canadians are not worried about whether they can compete with Americans within the continent we share. Rather, Canadians and Americans alike are focusing on how to compete with the new economic powers such as China and India that are transforming the global marketplace.

Customs duties have fallen around the world since the NAFTA was signed.  Having a free trade zone by itself therefore is less of a competitive advantage than it used to be. What matters now is the extent to which partners within a free trade zone are able to look beyond customs duties at other ways to help people and goods move between them as quickly and efficiently as possible. This overriding imperative brings two new sets of issues to the fore.

The first is regulation.  Regulatory differences between countries create a huge administrative burden that adds to costs and delays cross-border traffic. Every country has some unique regulatory priorities, but for the most part, advanced countries share very similar regulatory objectives and their rules tend to differ in relatively minor ways.

Eliminating unnecessary regulatory differences between Canada and the United States could make businesses in both countries more competitive while maintaining or strengthening the protection of human health and safety.  Regulatory approaches such as harmonization or mutual recognition also could take away some of the most potent ammunition that Canada’s opponents have used in trade disputes such as the one over softwood lumber.

The second critical area for increased cooperation is that of security.  This has been the pre-occupation of the United States since the terrorist attacks of September 11, 2001, and no other economy depends more on efficient movement across borders than does Canada’s. 

Any security-related delays at the Canada-United States border hurt our economy in both the short- and long-term.  They impose higher costs immediately on companies operating in both countries. In addition, they add to the perception of border risk and increase the probability that companies thinking about future investments in operations to serve customers across North America will play it safe by setting up shop in the bigger market.

The leaders of Canada, the United States and Mexico recognized the importance of further progress on both fronts last year when they signed the Security and Prosperity Partnership of North America (SPP). The SPP’s focus is not on trade rules, but rather on practical ways to help people and goods move faster and more securely within the continent, primarily through better border management and regulatory cooperation.

Free trade still matters, and the deals our country signed in the 1980s and 1990s continue to produce huge benefits for Canadians. But the real value in the resolution of the softwood lumber dispute is the symbolic transition from a past preoccupation with customs duties and competition within North America to a new focus on broader cooperative efforts to enable business across North America to compete more effectively in the global arena.