"Dave Martindale" wrote in message
...
"Ed Huntress" writes:

I'm curious if you guys know the issue on which the case is being
decided.
Canada hasn't denied that they subsidize lumber production via
state-determined stumpage fees (well, they *did* make that argument, but
dropped it). What's at issue is a fairly arcane question of where the
cost
basis is supposed to be determined for judging relative economic harm.

To the best of my knowledge, Canada has not admitted "subsidizing" lumber
production. Most timber lands in Canada are publically owned, and the
trees are sold at stumpage fees set by contract. The contract process
is supposed to bring in enough income to pay expenses (so stuff isn't
being "sold at a loss"), and this also allows the provincial government
to control things like raw log exports - it's better for the economy if
the lumber is processed into products locally.



IIRC, the way it went was that the US first made a claim that the stumpage
fees were artificially low because they were based on a cost basis that, as
you say, "paid expenses." In other words, no real-estate amortization costs,
no insurance costs, no profit on the capital represented by the land's
principal value.

But the WTO is not equipped to deal in a direct way with such internal
political issues as how to account for public ownership of raw resources.
Canada never disputed that the stumpage value did not account for the costs
that would have accrued if the resource was privately owned in a free
market. It skipped right over the issue and went to one that the WTO *will*
deal with, which is the question of whether an import does harm to the
importer's industry. And there it has bogged down, as the US International
Trade Commission made a questionable case for this point.

This is a good example of why I scoff at the idea of "fair trade," just as I
scoff at "free trade." Former US Trade Representative Micky Kantor once said
there is no such thing as free trade. I'll stick my neck out a degree
further and say there is no such thing as fair trade.

Canada made cases before both the WTO and the NAFTA commission in this
dispute for an "inherent cost advantage" in the production of lumber.
There's no doubt Canada does have such an advantage. But, depending on which
side of the fence you're on, it's either an unfair advantage that has to be
compensated with tariffs, or it's part of the natural imbalances between
nations that underlie the theory of Comparative Advantage.

This is where "fair trade" starts to run up on the rocks. If government
ownership of the resource, which results in low prices being charged to
private industry for raw materials, isn't an unfair advantage, then nothing
is. Which is to say, even contemplating fairness in trade is an exercise in
self-delusion. Canada trades to serve its advantage, not that of the United
States, and vice versa. So, if we're going to trade, it has to be by some
rules that we both accept. The WTO is falling short in producing a set of
mutually acceptable rules. So we will negotiate, because neither one of us
is going to set ourselves on fire for the sake of some abstract set of trade
rules that fails to serve our purposes, no matter how much other nations may
want us to do so.


It seems that the US position is that if the logs aren't auctioned on
the open market, then the companies aren't paying market prices for the
logs, and this is a "subsidy". It isn't what most people would call a
subsidy, but to the US lumber lobby if it's not done the US way it's
wrong. The US seems to want open auction of logs, and also no
restrictions on raw log exports.

Yeah, that's the kind of thing that's absolutely necessary -- the trade of
intermediate products of production -- if the market is going to set the
true costs of products being traded. Canada doesn't like it, and it is an
ideological point, but, without it, both free trade and fair trade are a
farce. What you're describing is a classical case of market distortion
caused by government ownership of resources, which is being used to provide
an indirect subsidy to industry.


Basically, there is a different system in Canada, at least supposedly
managed for public benefit, but the US won't accept any other system as
being equal.

No other system IS equal. That's why there is no way to produce "fairness"
in trade the way the idea is popularly conceived.

Canada isn't selling the logs at a loss, or giving the
lumber companies direct monetary subsidies, or "dumping" (selling the
lumber for less in the USA than Canadian customers pay), it just isn't
charging as much as private US landowners sell their logs for. In the
US view, the US way is right and Canada's way is wrong, but that's a
pretty biased view.

Actually, although I have little sympathy for the US logging industry,
they're quite right on this point. You have a classical case here. The way
an economist would work this out would be to ask, if Canada is charging less
for stumpage than the price that would result from private ownership of the
property, then who is paying the difference? The answer is, your children
and your children's children, because you're selling an asset short today to
gain a market-share advantage, and you're not accounting for the true cost
of your asset. That's the kind of distortion that results from government
ownership. It's your choice, and that economist would say that the US
shouldn't complain, because you're subsidizing low lumber costs for us by
saddling future generations with an asset you're giving away today. But that
would be a macroeconomist. A microeconomist would say you're trying to grab
market share by hiding true costs. g



I can't help thinking that if the shoe was on the other foot, and the US
public was providing a resource to producers at less than open-market
prices, the US attitude would be that this was wonderful and entirely
fair, or at least allowed. For example, how much do the farmers in
California's central valley pay for water? Does is pay for the dams and
the network of canals that distribute it? Isn't this a much larger
subsidy of farmers by the public? Doesn't this give California farmers
an unfair advantage in producing and exporting food?

Again, there's no such thing as fair trade.


From this side of the border, it looks like US policies are based
entirely on self-interest, not principles. Protectionism is either "good"
or "bad", depending on who benefits and who loses.

Nobody's trade policies are based on principles, except the business
principles that produce for us the best possible result. Certainly not
yours, and certainly not ours. We don't elect our leaders to be altruists to
our trading partners, nor to be economic theorists who would sacrifice our
interests in order to fulfill an abstract theory.


In the case of lumber, it's actually in the self-interest of only a
small number of people in the USA, while the general public gets to pay
higher prices.

That's true, but the final issue is one of both social and economic
structure. Do we want to see timber land values depressed because of cheap
foreign competition? That would undermine the banks that hold the mortgages.
Do we want to undermine the banks that hold those mortgages? That would
force them to call in loans in order to maintain liquidity and to reinforce
their capital reserves. And who will pay for that? Everyone who lives in
that part of the country.

And so on.

Ed Huntress