Softwood, cement: Beacons of NAFTA’s failure

Softwood, cement: Beacons of NAFTA’s failure
06 September 2005

The United States slaps punishing tariffs on imports of a vital building material, driving up the price and creating sporadic shortages in the midst of a housing boom. But after years of litigation — before international trade panels and US courts — the trade dispute remains hopelessly stalemated. Sound familiar?

It could easily be the Canada-U.S. softwood lumber dispute, of course. But the product is Portland cement and the aggrieved exporter is Cemex SA, Mexico’s dominant producer.

And here’s a sobering fact to ponder: A 55-per-cent anti-dumping duty on Mexican cement remains in place 15 years after the dispute began.

The long-running Cemex and softwood cases stand as disturbing testaments to the failure of the North American free-trade agreement and the World Trade Organization to deliver results.

Free trade was supposed to erode the counterproductive barriers that make the global economy less efficient — easing the flow of goods readily available in one country to markets where they are badly needed. And when problems arose, NAFTA’s dispute settlement system was to be a quick and independent court of last resort.

It hasn’t quite worked out that way. And hurricane Katrina offers a powerful illustration of how we are all paying for that failure.

Last week, after Katrina slammed into the US Gulf Coast, the Bush administration quietly announced that it would trim the duty on Mexican cement to 41 per cent by the end of this year. US building contractors quickly complained that the modest reduction would do nothing to relieve cement shortages in at least 10 states just as the daunting reconstruction begins.

The same argument could be made for softwood. The tariffs on Canadian lumber add an estimated US$1500 to the cost of every home built in the United States. Multiply that by the hundreds of thousands of homes and structures that will have to be rebuilt in Mississippi, Louisiana and Alabama, and you have a powerful example of the cost of protectionism.

And that’s what is perhaps most troubling about these enduring trade cases. Narrow domestic corporate interests have been allowed to exploit antiquated domestic trade laws to fatten their wallets while the rest of the economy pays the price — year after year.

The duties impose steep costs on both sides. It’s not as if the duties create room for US producers to fill the demand. They simply slow construction and inflate the cost of raw materials.

The United States — particularly in the midst of a construction boom — doesn’t have the capacity to produce all the building materials it needs. It needs Canadian lumber and it needs Mexican cement.

The US duties on Mexican cement and Canadian lumber have never been about saving US jobs or upholding the law. The domestic industries that have spent tens of millions of dollars to litigate these cases do it because restricting imports is a cost-effective way to prop up the price of their products.

The Cemex case is also a reminder that trade litigation is an imperfect weapon. The process is costly and seemingly without end.

Mexico knows this all too well. Back in 1992 — before Mexico joined with Canada and the United States to create NAFTA — the country took the Cemex case to the anti-dumping practices committee of the General Agreement on Tariffs and Trade, now the WTO. The panel eventually recommended that the duties be lifted and the deposits refunded. But the United States failed to implement the ruling, and in 1995 the U.S. Commerce Department launched another investigation, concluding that Cemex was still dumping, or selling at a price lower than in its home market. Mexican appeals to the US Court of International Trade and several NAFTA panels also failed.

For cement and softwood, at least, the promise of free trade is elusive. And we are all paying a steep price — Canadians, Mexicans and Americans.

Published under Cement News