Speeches and Papers

North American Convergence: An American Perspective

by Gary Clyde Hufbauer, Peterson Institute for International Economics

Remarks at the annual policy conference of the Canadian Association for Business Economics
Washington, DC
March 30, 2001

© Peterson Institute for International Economics



The Facts of Globalization


American Sentiments

US-Canada Economic Integration

  1. Annual border crossings = 200 million
  2. Percent of Canadians living within 100 miles of the US border = 90 percent
  3. US-Canada trade in 2000 = Over US$400 billion
  4. Percent of Canadian trade involving the United States = 80 percent
  5. Percent of US trade involving Canada = 20 percent
  6. Cross-border foreign direct investment = About US$200 billion


Trade Disputes


North American Convergence?


The Softwood Lumber Agreement (SLA)

Entered into force in 1996

Expires March 31, 2001

Dispute dates back to 1992. A Chapter 19 arbitration panel was requested in May 1992 after a USITC countervailing duty determination. The arbitration panel invalidated the CVD order in August 1994. The United States requested an Extraordinary Challenge Committee (ECC) to review the panel's decision; the ECC affirmed the panel's decision.

1994 imports of softwood lumber from Canada = US$ 6 billion.

SLA imposes fees on imports in excess of 14.7 billion board feet, restricting Canadian share of the US market to 34 percent when it could be significantly higher.

CATO estimated these trade restrictions add US$50-80 per thousand board feet to the price of lumber. The method of estimation probably overstates their effect.

In any event, Canada is not interested in renewing an SLA type of agreement and is prepared to fight another subsidy case in the United States.

The Canadian government has proposed an "eminent persons" panel to study the dispute and make nonbinding recommendations. Their proposed deadline for this panel to conclude its work is 31 May 31 2001. The United States has not yet accepted the proposal.

US industry favors a solution that shifts from restrictions on volume to an approach focused directly on keeping prices up.

US Trade Representative Robert Zoellick has signaled he would support negotiating an export tax to restrict softwood lumber from Canada, but only after the US Commerce Department has made a finding in AD and CVD cases brought by US industry.

Like trade disputes in many other industries (autos, semiconductors, civil aviation), this one will be ultimately "settled" through cross-border investment and industrial consolidation. Forestry policies that give high priority to the environment can help-if they are implemented through a transparent fee structure.

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