America's NAFTA nemesis: Canada, not Mexico

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NAFTA explained

NAFTA explained

America and Canada have one of the largest trade relationships in the world.

President Donald Trump met Canadian Prime Minister Justin Trudeau for the first time on Monday.

"We have a very good commercial relationship with Canada," Trump said at the press conference.

But US-Canada trade relations have not been as smooth over the years as you may think. There have been trade wars, retaliation, allegations of dumping and job loss.

"Our trade relationship is obviously strong … but the relationship was difficult despite the existing agreements," said Stuart Trew, editor at the Canadian Center for Policy Alternatives, a research group in Ottawa, Canada's capital.

Trump has often criticized Mexico and NAFTA, the trade agreement between the United States, Mexico and Canada. But Canada is rarely mentioned.

However, there were more NAFTA disputes against Canada – almost all of U.S. companies – than Mexico. Canada still has strict tariffs on the United States and the two sides have only recently resolved a bitter dispute over meat.

Most leaders and experts emphasize that trade relations between the two nations are strong and largely positive. But Canada and America had a lot of struggles along the way.

Trump now wants to renegotiate NAFTA, which will be high on the agenda when he meets Trudeau.

1. Canada has more problems with NAFTA than Mexico

When you hear Trump, you might think that Mexico is the bad actor of NAFTA. However, since NAFTA was founded in 1994, 39 complaints have been filed against Canada, almost all of which are from US companies. Known in the industry as dispute settlement between investor states, companies can resolve cases under a special jury of NAFTA judges rather than local courts in Mexico, Canada, or the United States.

There were only 23 complaints against Mexico. (For comparison, companies from Mexico and Canada submitted a total of 21 complaints against the United States.)

Canada is increasingly the target of American complaints. According to CCPA, a Canadian research company, Canada has faced 70% of NAFTA disputes since 2005.

2. The wooden battle between the United States and Canada

NAFTA is not the only wound area. In the United States, a rate of around 30% was set for Canadian lumber in 2002 because Canada "deposited" its wood in the United States. Canada rejected the application, arguing that the tariff had cost its timber companies 30,000 jobs.

"It has been a very acidic point in Canadian-American relations for quite a while," said Tom Velk, an economics professor at McGill University in Montreal.

The argument originated in the 1980s when American timber companies said their Canadian counterparts were not playing fairly.

Whether Canada actually violated the rules is controversial.

Canadian officials deny that the government subsidizes conifers in Canada. American loggers still claim that this is the case, and a report from the US Department of Commerce found that Canada granted subsidies to loggers in 2004. No indication was given whether the subsidies were still ongoing.

Canada allegedly subsidized timber companies because the government owned many of the countries from which the timber came. This subsidy – in addition to Canada's huge supply of wood – allowed Canada to value its wood under the US fees.

The World Trade Organization ultimately sided with Canada and denied America's request. Both sides agreed in 2006 to end the tariff.

However, this agreement and the resulting grace period expired in October and both sides are back on the ball. The Obama and Trudeau governments failed to reach a compromise before Obama resigned, and there remains a controversial trade problem with US lumber companies that are again demanding tariffs.

Relatives: "Without NAFTA" we would be out of business

3. Smoot-Hawley triggers a trade war between the United States and Canada

It got worse during the Great Depression. In 1930, Congress wanted to protect US jobs from global trade. So the US imposed tariffs on all countries shipping goods to America to protect workers.

It was called the Smoot-Hawley Act. It is now widely recognized that this law made the Great Depression worse than it was.

Canada was angry and retaliated against the US more than any other country and triggered a trade war.

"Canada was so outraged that … they raised their own tariff for certain products that matched the new US tariff," said Doug Irwin, professor in Dartmouth and author of Peddling Protectionism: Smoot-Hawley and the Great Depression.

For example, the United States raised an egg tariff from 8 cents to 10 cents (after all, that's the 1930s price). Canada retaliated by increasing its tariff from 3 cents to 10 cents – a tripling.

Exports declined sharply: in 1929 the United States exported almost 920,000 eggs to Canada. Three years later, according to Irwin, only about 14,000 eggs were shipped.

See also: Remember Smoot-Hawley: America's Last Great Trade War

4. Canada's sky-high tariffs on US eggs, poultry and milk

Fast forward to today. Smoot-Hawley has long since disappeared, but Canada continues to impose high tariffs on US imports of eggs, chickens and milk.

According to the Canadian Department of Agriculture, some egg tariffs are 238% per dozen. Some milk imports are up to 292% depending on the fat content.

"They are so annoying that you cannot get them across. There are no American eggs in Quebec," says Velk.

According to Canada's embassy in the United States, the reality is very different. The Canadian authorities claim that Canada is one of the most important export markets for American milk, poultry and eggs, despite some stringent tariffs.

Customs duties are levied on some goods from all countries in the United States, but are nowhere near as high as in Canada.

Experts say these tariffs continue to annoy some U.S. milk and poultry farmers, some of which are forced to sell in the Canadian market. But they doubt that much will change since tariffs have been in place for decades.

Related: These Reagan tariffs Trump loves to talk about

5. RADIATOR HEADS and the future of NAFTA

Despite all of these disputes, experts emphasize that this trading relationship is still one of the best in the world.

In fact, the two countries are now so interconnected that American companies are sometimes on the side of Canadian companies in trade disputes and against US lawmakers.

For example, Canadian meat producers contested a U.S. law requiring them to label where the cattle were born, reared, and slaughtered. Canadians said the law discriminated against meat sales in the United States and forwarded the case to the WTO.

The WTO sided with Canada and in December last year, Congress repealed the Origin Labeling Act. The American meat producers – whose business is intertwined with Canada – actually supported their colleagues in Canada and argued that the regulation was too complex.

Regarding Trump's proposal to tear NAFTA apart, many American and Canadian experts say it's not worth renegotiating or ending the deal. The three countries that are part of the agreement are so intertwined that untangling this integration would affect trade and economic growth.

– Editor's Note: This story was originally published on August 11, 2016. We have updated it since then.

CNNMoney (New York) First published February 13, 2017: 11:11 ET