Canada Goes Toe-to-Toe With U.S. Trade Policy

Canada has taken a shot at the United States in the World Trade Organization. According to WTO documents circulated Jan. 10, Canada opened a case Dec. 20 against the United States' "systemic trade remedies measures." The United States has launched several trade remedy measures against Canada since U.S. President Donald Trump's administration took office and continues to exert pressure on Canada in negotiations to amend the North American Free Trade Agreement (NAFTA). In Stratfor's 2018 Annual Forecast, we wrote that the United States would continue to push its aggressive trade agenda while trying to increase its centrality in decision making on international trade enforcement. Though this forecast holds, Canada's pushback will make the United States' task more difficult. 

Leading the Charge

Canada's case involves the most common focus of U.S. trade enforcement: anti-dumping and countervailing duties (AD/CVD). Canada argues that U.S. trade enforcement measures flout WTO agreements on anti-dumping policies that prohibit companies from exporting products at lower prices than those charged in domestic markets and are also in violation of agreements that impose duties on subsidized imports that are found to hurt domestic producers in a country. Canada also says that the United States is in violation of the WTO's General Agreement on Tariffs and Trade, as well as its Dispute Settlement Understanding. In one of its complaints, Canada accuses the United States of purporting "to implement adverse WTO recommendations and rulings concerning US anti-dumping and countervailing measures, but [doing] so in a manner that is not compliant with its WTO obligations."

The timing of Canada's announcement is conspicuous. The next round of NAFTA talks is scheduled for Jan. 23-28 in Montreal and is expected to be heated. During negotiations, Canada, Mexico and the United States will try to hammer out the finer details of critical issues, including outlining eligibility criteria for automobile exports under the agreement. Canada's actions in the WTO are almost certainly related to the NAFTA negotiations and are a likely bid to increase the country's negotiating power, as it also increases its outreach to pro-NAFTA politicians and groups in the United States. There are also two pending WTO disputes against Canada related to AD/CVD that the government would like to see removed: The tariffs on softwood lumber exports and Bombardier's airplane exports are highly politicized topics in Canada, after all.

Though Canada certainly has plenty of domestic interest in pushing against the trade policies of its southern neighbor, its filing is about more than its own trade disputes. Canada cites 188 examples of U.S. trade remedies in its claims, but only a handful involve U.S. trade action against Canada and another 33 countries are mentioned. Put another way, Canada may be taking on the United States on behalf of the rest of the world, whether by default or construction.

The dispute is sure to become one of the most closely watched WTO cases in recent years. The backbone of U.S. trade enforcement policy has long focused on what the United States perceives as unfair domestic subsidies or dumping by its trading partners. In fact, it's perhaps the most critical reason why the United States opposes China's quest for market economy status in the WTO: Not having the status allows the United States to more easily pursue AD/CVD cases against China. Consequently, Canada's case has become a shot across the United States' bow, especially as the Trump administration continues to take a more protectionist stance on trade and to focus on enforcement of trade policy.

Waking an American Giant?

U.S. Trade Representative Robert Lighthizer, unsurprisingly, issued a full statement criticizing Canada's request, calling it "a broad and ill-advised attack on the U.S. trade remedies system." He said that the move could hurt Canada's exports to the United States by removing barriers to imports from other countries and that it undermines U.S. confidence in trade with Canada.

The United States won't take Canada's shot lying down. It will continue to pressure Canada in NAFTA negotiations. It may, however, find it in its interest to strike a deal with Canada on softwood lumber exports and on the other contentious bilateral sectors before the case moves along too far. But perhaps more important, with such a broad case now launched at it in the WTO, the United States has another reason to stonewall appointments to the WTO's Appellate Body, the tribunal that hears appeals in WTO cases. Regardless, the United States is now seeing its own trade rules being challenged at a rules-based organization it once fought hard to build. And Canada is leading the charge.