Why a free tradee agreement is good for Quebec’s mining industry

For Quebec’s mining industry, the free trade agreement with the United States is a way to deflect rising U.S. protectionism.

Indeed, free trade already exists in the mining industry: tariffs are low or non-existent and non-tariff barriers (ntbs) are few. But, because our access to the American market is far from secure, as made clear with shakes and shingles, lumber, steel and now potash (what’s next?) we feel it is in our best interest to enter into this agreement. It will restore the rule of law in commerce and ensure that trade with our major partner flows more securely in the future. Free trade already here

Quebec’s mining industry already competes effectively in North America. We sell to the United States 10 times more minerals than we buy from it. And our mineral trade faces few constraints at present.

For metal concentrates, primary metals or minerals, there are very few tariffs protecting either the Quebec or the U.S. industry. No tariffs are imposed on 75% of our metal exports and on 65% of our industrial mineral exports. The United States has a 1% tariff on copper and 1.5% on zinc, for metals, and 4.2% on granite, 2.4% on mica and 1 cents (US) per 100 lb on cement, for industrial minerals. For construction materials, transportation costs are a stronger impediment than tariffs.

Conversely, tariff barriers on Quebec’s mineral imports are very low. No tariffs are imposed on 85% of our metal imports from the U.S. and on 90% of our industrial mineral imports. An average 5% is levied on the remaining metal imports and 9% on the industrial minerals.

Even when the Canadian tariff exceeds the U.S. tariff, the firms involved feel no concern for a protection they do not need. Quebec’s mining industry is competitive and should experience no difficulty when the remaining tariffs are removed. Rising U.S. protectionism

No significal ntb impedes U.S. and Canadian mining products from being sold in the other country. However, the protectionist bandwagon is moving full steam in the U.S. The political pressures to opt for protectionism are enormous. No country has ever tried to defend an open economy while running so strong a trade deficit — it should exceed $175 billion(US) in 1987. The protectionist pressures bear strongly on the mining industry, where the U.S. is a medium-to- high-cost producer on the international scale.

So the major issue in Canada- U.S. mineral trade is the increasingly frequent invocation of contingent protection and special- purpose protectionist legislation. The U.S. mining industry uses trade remedy measures extensively. Safeguards

Copper and steel petitioned for safeguards in 1984. President Reagan refused to grant quotas to the copper industry, overriding the advice of his trade officials. But he yielded to the pressures of the steel industry and the U.S. negotiated “voluntary export restraint” agreements with its main steel suppliers.

Canada was luckily excluded from them but, unofficially, it is limited to a 3% share of the U.S. market. It had to initiate a steel export monitoring program in June, 1987, in an attempt to stem mounting U.S. concern that it is shipping too much steel across its southern border and to preclude any U.S. action to impose limitations.

Nevertheless, Congress is now reviewing bills to extend “voluntary” (i.e., compulsory) restraint arrangements to Canada, many in the form of an amendment to the massive trade bill now on both the Senate and House of Representative floors. Countervail and anti-dumping

Quebec’s mining industry could suffer from abusive application of countervail and anti-dumping laws. The U.S. is the main user of countervailing duties.

In 1986, they hit particularly hard on another Quebec industry, softwood lumber. The U.S. department of commerce found that Canadian softwood was unfairly subsidized to the tune of 15%. It reversed a 3-year-old previous decision through a new interpretation of U.S. trade law but no change had happened in Canadian practices or U.S. trade laws in the meantime.

To avoid the countervailing duty, Canada accepted to impose a 15% export tax on the lumber sold south. The deal struck on our softwood lumber exports allows the U.S. to review the way Canada values the lumber on which the charge is levied and monitor the distribution of the charge.

This is a disturbing intrusion into Canadian affairs. The decision could result in a pattern of countervail actions which could disrupt the exports of many resource-based industries in Quebec.

In August, the U.S. commerce department imposed anti-dumping duties on the output of individual Saskatchewan mines ranging from 9.14% to 85.2%. But everybody knows Canada owns the best potash mines in the world.

These sorry episodes show the need for a wide Canada-U.S. trade agreement, one with a dispute- settlement mechanism that will provide safeguards against unfair trade actions. U.S. trade legislation

The problem is that valuing a subsidy is a remarkably subjective process. And Congress is proposing bills that will change legal definitions and make hash of widely accepted ideas of what constitutes an unfair subsidy.

U.S.-proposed trade legislation in 1987 expands the list of actionable subsidies. In the past, benefits available to all companies within the economy were not countervailable subsidies. With the new trade bill, this general availability test is changed and broadened to an actual use test.

The new provision would base countervailability on the specificity of the firms which benefit from a government program even where such programs are generally available within a country. In other words, the focus would now be limited to determining whether a competitive advantage is in actual fact conferred on a specific industry, firm or group of firms.

These provisions would dramatically expand the range of government programs vulnerable to countervailing duties. Many companies or industries could be vulnerable to this subjective de facto review, where in the past no question would have been raised. Natural resources, bestowed domestically at low prices, owing to a comparative advantage in producing them, could be considered an illegal subsidy. Electrometallurgical (aluminum, for instance) and electrochemical products, which benefit from cheap hydroelectricity, could be subject to countervailing duties.

These proposals — plus a welter of very curious bills in Congress — have caused strong concern among Quebec’s mining people. At stake is our comtinued access to the giant U.S. market. The only alternative to unilateral definitions of fairness and to increasing restrictions on Quebec’s mineral exports to the U.S. is a negotiated bilateral agreement. The agreement

The free trade agreement reached in October provides an across-the-board tariff removal, mostly by phasing out. A compromise was reached on the issue of a trade dispute settlement mechanism. The agreement guarantees the application of each country’s anti-dumping and countervail laws but penalties can be appealed to a bilateral panel that would make binding decisions.

Any changes to these laws can be applied to each other only following consultation and if specifically provided for in the new legislation. Canada and the U.S. will develop a substitute system of trade laws in both countries within five to seven years. By 1996 at the latest, U.S. and Canadian trade laws respecting each other will be replaced by mutually-developed North American trade rules.

The core of the agreement concerns the new rules on contingency protection. The dispute settlement will not eliminate past trade actions taken against Canadian exports. It is not a foolproof guarantee of fairness and does not exempt our mineral producers from U.S. trade laws.

Nevertheless, the bi-national appeal body, which can review the decisions made under each country’s trade laws, is likely to reduce the number of trade cases brought against our exports. It should also stop the manipulation in interpreting trade law, as we have witnessed in the softwood lumber countervail case.

Long-term access to our main market now seems assured and protectionism kept in check. The mining industry’s interest lies first in these benefits. But I am also convinced that, by following the free- trade option, we will create a more dynamic industry capable of adaptation and such as to attract foreign and domestic investment and reinforce Quebec’s technological base.