Trade Compliance

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Trading Supply Management for Softwood Lumber in NAFTA Talks a “Win-Win” Says Think Tank

Posted March 28, 2017

With the Trump administration set to renegotiate terms of the North American Free Trade Agreement (NAFTA) later this year, Canada should seize this opportunity to open its agricultural markets, and in return ask for full access to American markets for its softwood lumber, argues a paper issued last week by the Montreal Economic Institute.

“Trade between Canada and the United States having stagnated since the early 2000s, eliminating supply management and softwood lumber tariffs would be a good way of breathing new life into the economic partnership,” points out Alexandre Moreau, Public Policy Analyst at the MEI and author of the publication.

The system of quotas and tariffs imposed on dairy, eggs, and poultry blocks the entry of foreign products and costs Canadian household $258 a year on average, according to the OECD. Furthermore, if the United States went ahead with the imposition of a 25% tariff on Canadian softwood lumber, the average price of a new home on the American market would increase by $1,300. Just for single-family homes, these additional costs would total $1 billion.

“Trade barriers have always enriched a small minority of people at the expense of the vast majority,” says Mr. Moreau. “The disappearance of existing tariff barriers would be very beneficial for Canadian and American consumers alike.”

Consumers are not the only ones who suffer in the current situation. Canadian farmers also lose under supply management, since it deprives them of access to billions of consumers around the world. Moreover, the funds required to purchase quotas limits their ability to invest to increase the productivity of their farms.

“Putting supply management on the table would be a good negotiating tactic that could convince the American government to drop the idea of imposing tariffs on Canadian softwood lumber,” adds Mr. Moreau. “We would thus avoid another softwood lumber dispute of the kind we’ve struggled through every five or ten years.”

“To preserve and even expand economic relations between the two countries, it is imperative that politicians on both sides of the border resist the influence of lobby groups and come to the defence of the millions of consumers who pay the price for protectionism,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.

Click here to download the MEI Economic Note “Trading Supply Management for Softwood Lumber?”

Related: Although the U.S. dairy industry is sure to press for increased market access in any renegotiation of NAFTA, all the while righteously touting the virtues of the free market, in fact it is arguably the most heavily price regulated industry in America, as explained by a recent Bloomberg article examining the long-running class action dispute between dairy farmers and two of the country’s largest dairy cooperatives.