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trade dispute

Employees work in the lumber yard at Ledwidge Lumber Co. in Halifax on May 10, 2017. Canada's softwood lumber exports to the U.S. have fallen since the Americans imposed new duties earlier this year, but thanks to near-record wood prices the industry isn't suffering much from the political trade fight. As the clock inches towards the end of 2017, it seems unlikely a new softwood agreement will be inked between Canada and the U.S. this year, but even the industry association representing most softwood producers in Canada isn't that concerned about it. THE CANADIAN PRESS/Darren CalabreseThe Globe and Mail

The Canadian government is taking the United States to the world's trade court in a wide-ranging complaint that accuses Washington of flouting the rules of global commerce.

This comes as expectations grow in Ottawa that President Donald Trump will soon announce the United States intends to pull out of the North American free-trade agreement.

Canadian government officials say they believe it's increasingly possible Mr. Trump will start the process of withdrawing from NAFTA. Even if Mr. Trump triggers the withdrawal process, Canada will continue to take part in talks to overhaul the trade deal, sources with knowledge of the renegotiation said.

Ottawa does not want to be blamed for the collapse of the deal – or give Mr. Trump a pretext for pulling the plug – so it will show up to the table every day no matter how deadlocked the talks become, the sources said.

The new complaint Canada has filed with the World Trade Organization is an unfriendly gesture between two countries that are each other's biggest trading partner and it appears intent on making the case that the United States has diverged from the rules-based international order that has been built up over successive multilateral trade deals.

The Canadian government is accusing the United States of breaking WTO rules in the way it prosecutes foreign countries for allegedly dumping or subsidizing exports bound for the United States.

The complaint is substantial in magnitude. It lists nearly 180 cases stretching back 20 years and covering not just the U.S. treatment of Canadian companies, but also its handling of imports from dozens of countries ranging from China to South Africa to Argentina.

A spokesman for Foreign Affairs Minister Chrystia Freeland said this challenge is tied to Canada's latest fight with the United States over softwood lumber. The U.S. government slapped punitive tariffs on Canadian exports to the United States, alleging the goods are subsidized and being dumped at low prices in the American market. The United States strongly criticized the Canadian action on Wednesday, warning it will end up backfiring against Canada because, were it to succeed, it could lead to a flood of imports from China into the United States that would displace other countries' products.

Nearly half the cases the Trudeau government is championing in its WTO filing are instances in which the United States has penalized shipments from China that it considers subsidized or dumped at below-cost prices.

U.S. Trade Representative Robert Lighthizer called the move "an ill-advised attack" on the American system for monitoring foreign trade.

He pointed out that the vast majority of cases Canada is complaining about don't even involve Canadian companies.

"For example, if the U.S. removed the orders listed in Canada's complaint, the flood of imports from China and other countries would negatively impact billions of dollars in Canadian exports to the United States, including nearly $9-billion in exports of steel and aluminum products and more than $2.5-billion in exports of wood and paper products," Mr. Lighthizer said.

The Canadian government feels this case could add weight to an existing complaint to the WTO over the duties Washington has levied on Canadian softwood.

It's possible other countries may join this complaint as intervenors, making it a bigger and more embarrassing problem for the U.S. government.

Canada says the United States is breaking WTO rules in myriad ways, including by retroactively applying duties on foreign imports it deems to be subsidized or dumped, and using the lowest price it can find – rather than the average – when calculating alleged infractions.

Critics have accused the Trump administration of wanting to hobble the WTO. Mr. Trump has complained the organization, which came into being because of U.S. support, is biased against American interests.

"The WTO was set up for the benefit [of] everybody but us. … They have taken advantage of this country like you wouldn't believe," Mr. Trump told Fox News last year. "We lose the lawsuits, almost all of the lawsuits in the WTO."

The Canadian move is "bold for sure and slightly risky," said Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University in Baltimore. "It's an escalation for sure," said Prof. Sands, who said the move may have come because Canadian trade negotiators and politicians believe the strategy of playing nice with the Trump administration has not paid dividends.

He said it could be another step toward what he says is a nightmare scenario for the NAFTA talks, which is that the Americans call a halt to those negotiations and talk separately with Mexico in hopes of signing a bilateral deal before the Mexican elections later this year and U.S. midterm Congressional elections this fall.

Chad Bown, an economist and trade expert at the Peterson Institute in Washington, said Canada's WTO move sends a stark message to Mr. Trump amid NAFTA talks: If you kill the deal, this is how Canada will fight you in trade disputes.

"This sends a signal to the Trump administration that if NAFTA is going to end, and we are going to be treated no better than other countries in the world, then this is the kind of treatment you can expect to receive in return," said Mr. Bown, a former official in the Obama administration and at the World Bank.

Mr. Bown said aggressively taking on the United States at the WTO is also something of an insurance policy for Canada: If NAFTA is torn up, or if the revised deal guts its dispute-settlement mechanisms – which the United States has proposed – Ottawa will have to rely on the WTO to pursue Washington.

Mr. Trump has repeatedly threatened to pull out of NAFTA – or at least trigger the withdrawal process to increase pressure on Canada and Mexico.

Canada believes Mr. Trump's threat is serious: One source said Ottawa was ready for the President to pull the plug last fall and was surprised when the United States instead extended the negotiations to March. Canada is bracing for the possibility Mr. Trump will trigger a withdrawal in the coming weeks.

If Mr. Trump triggers Article 2205, it will give Canada and Mexico six months notice of the United States' intent to withdraw from NAFTA. Such notice would not automatically mean a withdrawal: It would only give the United States the option to pull out after the six-month period elapses.

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