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Vol. 10, No. 11 Week of March 13, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska natural gas pipeline caught in trade mess

Canada, U.S. embroiled in missile defense, softwood lumber, cattle and wine disagreements; B.C. cabinet minister sees pipeline as chance to get U.S. attention

Gary Park

Petroleum News Calgary Correspondent

Canada and the United States have woven a tangled web that involves President George Bush’s plan for a ballistic missile defense system, softwood lumber, cattle and wine, and threatens to ensnare the Alaska gas pipeline.

With the largest two-way movement of goods and services in the world facing its deepest crisis in more than 15 years of North American free trade, the mood turned ugly earlier in March when British Columbia Forests Minister Mike de Jong warned U.S. lawmakers that has province might stall regulatory approval of the British Columbia segment of the proposed gas line from Alaska’s North Slope.

He said in a conference call from Washington, D.C., that the attitude in British Columbia is “such that it would be very difficult to acquire support for an expedited review” of the Alaska application.

De Jong was referring to the growing frustration in the province over the slow pace of efforts to settle a long, bitter feud over exports of softwood lumber, despite a series of North American Free Trade Agreement and World Trade Organization rulings that Canada was not unfairly subsidizing its forest industry.

“We can’t expect to get engagement from (U.S. political leaders) unless they are aware of what’s at stake,” he said.

Against that background, the U.S. has collected US$4.25 billion in softwood duties against Canadian lumber and has talked about distributing that money among U.S. lumber producers.

The WTO has now struck a panel to decide whether Canada should be allowed to collect a similar amount in retaliatory tariffs on a list of U.S.-made goods ranging from peanut butter to skis.

Cattle conflict complicates matters

Complicating matters was a double setback earlier in March when the U.S. Senate voted 52-46 in a bipartisan resolution to strike down a U.S. Department of Agriculture regulation lifting a 22-month ban on the shipment of live cattle from Canada following the initial discovery an Alberta cow was infected with bovine spongiform encephalopathy, BSE, more commonly known as mad cow disease.

That came just two days after U.S. District Court Judge Richard Cebull in Montana issued an injunction blocking the Bush administration’s plan to reopen the border on March 7, declaring that U.S. beef would be hit with a “stigma” of BSE infection if Canadian animals were allowed to mix with the U.S. herd.

Regardless of an investigation by U.S. scientists that found little risk from Canadian beef, Cebull argued that a delay in opening the border would be “prudent.”

Being shut out of the U.S. market has cost the Canadian beef industry C$7 billion.

U.S. Agriculture Secretary Mike Johanns said he was “very disappointed” with the court ruling and Bush threatened to veto the Senate resolution if it was approved by the House of Representatives.

The White House said any decision that would “prevent the reopening of our Canadian border would cause continued serious economic disruption of the U.S. beef and cattle industry.”

Canada won’t participated in missile defense shield

With the dust swirling around lumber and cattle disputes, Canadian Prime Minister Paul Martin rejected Bush’s attempt to have Canada participate in his missile defense shield program.

Frank McKenna, Canada’s newly installed ambassador in Washington, said that decision was a “direct result” of Canadian unhappiness over the unresolved trade matters.

“It is my belief that the temperature in Canada (in its dealings with the U.S.) has, in part, been at a pretty high level as a result of these on-going trade irritants.”

“The atmosphere has not been conducive to creating a political environment where a different decision might have been achieved on the ballistic missile defense issue,” McKenna said.

Negotiation, litigation and retaliation

A spokeswoman for Canada’s International Trade Minister Jim Peterson said Canada was prepared to “vigorously” pursue three options — negotiation, litigation and retaliation — to make headway on its trade claims.

Although the C$10 billion in annual lumber trade is only a fraction of the Canada-U.S. trade it is a vital underpinning of the British Columbia economy and de Jong’s move to use the gas pipeline as leverage has been strongly endorsed.

John Allan, president of the B.C. Lumber Trade Council, gave 100 percent backing to the minister, saying “we’re in a huge legal and political battle and the Americans have refused to recognize our legal wins at NAFTA.”

Allan said the issue of slowing down the Alaska pipeline was one of several measures a delegation of government and industry officials raised in a recent meeting with Martin.

“The Prime Minister was very responsive to our request to ratchet up the issue,” he said.

International Forest Products President Duncan Davies told a Vancouver conference March 4 that the “only thing the United States understand is the hardball approach.

“If we don’t stand up now the lumber industry will be the first of many industries that a protectionist U.S. government will look to impact,” he said.

Peter Armstrong, chief executive officer of Great Canadian Railtour Co., while conceding the tourism sector could suffer from an all-out trade war, backed de Jong.

“Today it is softwood. Tomorrow it will be someone else. Eventually it will be my industry,” he said.

British Columbia Premier Gordon Campbell suggested to the conference that U.S. protectionism and heightened border control might actually work in his province’s favor.

“As the United States seems to pull itself in, I think there’s an opportunity for us to open ourselves up and reach out,” he said, speculating that British Columbia’s heavy multi-cultural mix gives it a competitive advantage.

“Going global is not just about trade,” Campbell said. “It’s about understanding culture. It’s about understanding people.”

Retaliation already authorized by WTO

But the short-term also requires overt pressure, in de Jong’s view.

In addition to slowing down approval of the Alaska pipeline, he wants Canada to proceed immediately with limited trade retaliation against the U.S. that the WTO has already authorized.

That could include cutting off British Columbia purchases of U.S. wines.

“When you meet with representatives, like senators, and they become aware of the specific discussions around retaliation and the fact that their wine products are at or near the top of the list (for retaliation), suddenly the dispute takes on a whole new complexion and a whole new relevance for them,” de Jong said. His British Columbia cabinet colleague, Agriculture Minister John van Dongen agreed that the province needs to send a “strong message to the United States that opposition to the border opening (to cattle) is not based on science but rather on domestic trade protectionism.”

He said Canada should even think about stopping the United States from shipping 11,000 live cattle a year from Hawaii through the Port of Vancouver on their way to the Lower 48.

Although Campbell prefers negotiated deals and was reluctant to use the pipeline as a big stick to achieve a solution in the softwood dispute, he told the Financial Post: “We have the tools and we can use them.”

Less diplomatic, de Jong said that if British Columbia is asked to give regulatory approval to the pipeline: “We can go slow or we can go fast. Right now, based on U.S. behavior, most British Columbians are telling me we should go very slow.”

On the wider Canada-U.S. trade front, there had been hopes of a start on fence-mending at a March 23 summit involving Bush, Martin and Mexican President Vicente Fox.

Government officials said it is unlikely that trade will find a place on the agenda, which is dominated by issues designed to increase security, cross-border traffic and quality-of-life issues, although Martin has pressed Bush to look for better ways to solve trade disputes.

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