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A long-standing trade dispute between Brazil and the United States turned nasty this week. The issue for Canada, and the rest of the trading world, is the extent to which this bilateral animosity could infect the rest of global commerce.
Since 2002 Brazil has been rightly angered by massive subsidies to American cotton farmers. Brazil's right to retaliate was affirmed by the World Trade Organization last year; on Monday it outlined its proposed counter-measures.
Among the punitive tariffs directed at sensitive U.S. industries are duties of 50 per cent on U.S.-made cars and 100 per cent on cotton products. As with most retaliatory actions, these measures are designed to get the attention of a protectionist U.S. Congress. Yet Brazil says it may go even further. It's also contemplating the suspension of U.S. pharmaceutical and software patents within Brazil - something that has never happened before, although WTO rules permit it.
While its underlying complaint is justified, Brazil's unprecedented threat to target intellectual property rights suggests a worrisome escalation. The Obama Administration has a month to respond. Hopefully sanity will assert itself.
It has been said many times that the Great Depression became great only after the international financial crisis of 1929 evolved into a global frenzy of protectionism and retaliation. Concern that such a political response could repeat itself in the present prompted the G20 nations to request a comprehensive look at the state of protectionism worldwide.
The resulting special report, co-authored by the WTO, the United Nations Conference on Trade and Development and the Organization for Economic Co-operation and Development, was released this week. It presents a complicated picture of the many stressors on world trade. Brazil hardly stands alone with its complaints.
The bad news includes a dramatic spike in countervailing duty investigations worldwide. Unsurprisingly, industries benefiting from new trade restrictions tend to be those that were sheltered before the recession, including commodities and textiles.
There has also been substantial growth in sanitary and technical barriers to trade. These murky regulations, up 15 per cent over the past year, often serve as de facto tariffs. And the report looks closely at the problems with stimulus programs involving "Buy Local" requirements, saying such requirements could proliferate.
On the positive side, the report observes a decrease in anti-dumping complaints and a welcome liberalization of foreign investment rules. In fact, Canada receives frequent mention for several initiatives, including the raising of foreign ownership limits in the airline industry, the successful negotiation to remove Buy American provisions from the Obama government's procurement policy and other "trade facilitating" moves.
Last week's budget and Speech from the Throne, released after the G20 report was completed, adds further evidence of Ottawa's commitment in this regard, including removal of all remaining tariffs on machinery and equipment and a promise for greater foreign ownership in the telecom industry.
These are perilous times for world trade. Ottawa's commitment to keeping our borders open thus serves as a welcome example to the rest of the world.