Opinion: No more Mr. Nice Canada. Time for us to break global trade rules, too

Mark Lawson was chief of staff to Ontario’s minister of economic development and trade, deputy chief of staff to the premier and chief of staff to the finance minister.

Over the past month, tariffs have been threatened, applied, paused and removed and now simply loom in the future for Canadian goods entering the United States. For Canadian exporters, it is not clear how long this situation will last. This period of uncertainty has already poisoned business confidence, threatening to drive both countries into recession.

The open market upon which Canadian exporters have long depended is no longer dependable. At least one commentator has complained that U.S. President Donald Trump is “breaking every convention of trade rules.”

Canada has already requested consultations regarding U.S. tariffs with the World Trade Organization, the body that enforces the rules of international trade. But in some ways, U.S. actions should serve as a source of inspiration for Canadian policy makers, who may be contemplating which rules they may need to break in order to deal with this new reality. Specifically, Canada should be considering new supports that would contravene the WTO’s Agreement on Subsidies and Countervailing Measures.

That particular agreement currently prohibits WTO members from offering subsidies that are “contingent … on the use of domestic over imported goods” or measures that would significantly undercut the price of a product that is identical to that produced by another country. Compliance with this agreement is critical to the rules-based global trading system, ensuring a level playing field when governments are scoping subsidies and preventing the egregious use of incentives to benefit local companies.

Canada’s tariff war journal

But the rules-based trading system has already been thoroughly debased by the current U.S. administration. It is unlikely that Mr. Trump will cease his actions because of Canada’s WTO challenge. To support Canadian companies and employees, Canada needs to implement measures that are contrary to the WTO’s rules.

Inspiration can be found in unusual places. Under the Ontario government of Premier Dalton McGuinty, the province’s Green Energy Act required wind and solar projects to have at least 25 per cent Ontario-made content, while projects brought online in 2012 required at least 50 per cent. According to analysis at the time, the intent of the provision was to build out a broader domestic supply chain. The European Union filed a complaint against the local content requirements, insisting the provision be removed because “the measures [are] being applied so as to afford protection to Ontario production of such equipment.”

Ultimately, Ottawa was required to take up Ontario’s fight at the WTO. The complaint was upheld on appeal, and Ontario was required to modify its legislation to eliminate the offending domestic content requirement. But at that point, some investments had already been made, following the policy signal.

In today’s context, federal and provincial governments should insist that their officials deliver policy options that mirror Ontario’s past efforts, ignoring WTO rules. The intent in this case would be to create the conditions in which Canadian companies and their employees can survive this period of trade disruption.

For example, time-limited investment tax credits and tax treatment for immediate depreciation aimed solely at Canadian companies could target and incentivize investment at a time when Canada needs it the most. Canadian content requirements, where feasible and practical, should also be considered. Those provinces that have yet to present budgets could consider including these measures, challenging the federal government to do the same. Incentives should be made available to Canadian companies, explicitly barring Chinese or American companies from applying. That is clearly offside of WTO rules.

Pairing those measures with consumer incentives or tax credits to buy Canadian in sectors that will be most affected (such as vehicles or forestry products) could help bring down the cost of purchasing a Canadian product (also on a time-limited basis) when alternatives may still prove less expensive.

Taken together, these measures could support investment by Canadian companies by reducing their costs and opening the domestic market. One day, it may once again be in Canada’s best interest to return to the rules-based order that was in place prior to the re-election of Mr. Trump. But today, Canada’s opponent in this trade fight has ripped up the rule book, threatening both the solvency of our companies and the sovereignty of our country. It’s time to take the gloves off.