Canada and the United States have a large trading relationship, but it is marked by recurring disputes, primarily over softwood lumber and Canada's supply management system for dairy, poultry, and eggs. These disputes have deep historical roots and continue to cause political and economic tensions.
Softwood Lumber Dispute:
- The dispute dates back to 1982, with the U.S. alleging that Canadian lumber producers benefit from unfair subsidies due to how provinces administer timber harvesting on public land.
- The dispute has gone through multiple rounds, often labeled Softwood Lumber I through V, involving investigations, agreements, and legal challenges.
- Key milestones include the 1986 Memorandum of Understanding (MOU) where Canada agreed to a 15% export tax, the 1996 Softwood Lumber Agreement that imposed quota limits, and the 2006 Softwood Lumber Agreement (SLA), which ended a round of conflict and saw the U.S. refund over $5 billion in duties.
- The most recent round began in 2017 with the U.S. imposing fresh duties, and it remains ongoing with no new agreement in place.
- The dispute has significant economic consequences, with U.S. tariffs and quotas hurting Canadian producers. For example, the U.S. has collected an estimated $5.6 billion in tariffs from Canadian producers since 2017.
- U.S. lumber tariffs raise costs for downstream industries and consumers, particularly in the homebuilding sector.
- Legal challenges have been a key aspect of the dispute, with Canada frequently winning rulings under NAFTA's Chapter 19, but the U.S. often pursuing new petitions.
Supply Management Dispute:
- Canada's supply management system for dairy, poultry, and eggs was established in the 1960s and 1970s to stabilize farm incomes.
- The system uses quotas to control domestic production and tariff-rate quotas (TRQs) to restrict imports, with over-quota tariffs often exceeding 100%.
- The U.S. views this system as a barrier to trade that keeps Canadian prices artificially high and limits U.S. market access.
- Despite barriers, the U.S. had a dairy trade surplus with Canada of around $560 million in 2017.
- The USMCA included some openings, such as expanded TRQ volumes for U.S. dairy, but disputes over the implementation of these quotas continue.
- This issue is politically sensitive in Canada, with strong support for the system from dairy and poultry farmers.
Canada's Grievances:
- Canada also has grievances about U.S. protectionist policies, including agricultural subsidies, country-of-origin labeling (COOL) for meat, “Buy American” procurement policies, and tariffs on Canadian goods.
- Canada successfully challenged U.S. COOL requirements at the WTO, leading to their repeal in 2015.
- “Buy American” provisions in U.S. law that favor American-made goods for public sector projects are a concern for Canada.
- The U.S. has applied tariffs or trade remedies to other Canadian products, such as steel and aluminum.
- Both countries maintain barriers in certain food sectors.
Broader Trade Tensions and Risk of Escalation:
- These disputes contribute to a larger narrative of trade tension in the Canada–U.S. relationship.
- The disputes are long-term and cumulative, and when multiple fights are active simultaneously, the political atmosphere can deteriorate quickly.
- The sheer volume of trade between the two countries and the existence of institutional channels help contain disputes.
- However, domestic politics can drive more nationalist trade positions, and shifts in the global trade context could also inflame tensions.
- The risk of escalation is real, and both countries need to engage in active engagement and negotiation.
- The Canada-U.S. trade relationship is marked by both cooperation and conflict, and the ability to manage disputes will be key to its future stability.
