Angry in the Great White North

From the CBC:

"We are extremely pleased that the ECC dismissed the claims of the United States," said International Trade Minister Jim Peterson.

"This is a binding decision that clearly eliminates the basis for U.S.-imposed duties on Canadian softwood lumber. We fully expect the United States to abide by this ruling, stop collecting duties and refund the duties collected over the past three years," he said.

Washington’s initial response was that the ruling doesn’t settle anything – and that it will take more negotiations before this dispute is wrapped up.

The kneejerk Canadian response has been just about universal: the Americans signed NAFTA but won't abide by it.

It's an appealing position, since it requires just about no thinking whatsoever. But what if the Americans are right? Why should they abide by a wrongheaded ruling?

Here is the truth of it:

The dispute is centred on stumpage fees -- set amounts charged to companies that harvest timber on public land. Many in the U.S. see Canadian stumpage fees as being too low, making them de facto subsidies. A U.S. coalition of lumber producers wants the provincial governments to follow the American system and auction off timber rights at market prices.

If not the winner of an auction, then how is the company to profit from the harvest selected? Who doesn't wonder if the selection is based on political favouritism?

If the provincial governments are not using auctions, then they are not getting the best possible price for the land. If that's the case, then they are not raising the most revenues possible from the crown lands. In turn, that means my taxes are higher than they need to be.

I don't like that. I don't like that at all.

And furthermore, American home builders are arguing that the US government should submit to the NAFTA ruling. That would give them access to cheap Canadian lumber. But if that lumber is cheaper by virtue of artificially lower stumpage fees, then we Canadians are effectively helping subsidize Americans home purchases.

Why is this a good idea?

Canadian industry depends far too much on things like government subsidies and the weakness of the Canadian dollar to remain competitive. The minute those subsidies disappear, or the Canadian dollar creeps up in price against the greenback, our exports are hurt as the relative efficiencies in Canadian and American industry go head to head. The Americans are more productive than us, so when we lose these artificial advantages, our industry starts to suffer.

Check out this graph (Chart 3). Our productivity has been trending downwards for 30 years as a percentage of the productivity of United States. We have never been more productive. In 1977, the chart shows Canada as being just about 94% as productive as the United States (measured as GDP per worker). In 2004, we measure 84% as productive.

The solution, of course, is to work to become as productive as the Americans. But then that means studying how expensive it is for Canadian companies to do business here, which means looking at our whole generous welfare state.

And no one wants to do that. Our generous safety net (employment insurance, welfare, health care, maternity benefits, etc) is what makes us better than the Americans. Right.

That and government subsidies and a weak Canadian dollar.