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New Canada-U.S. trade tensions loom over West Coast ports as inquiry launched

Port of Prince Rupert.

A U.S. federal agency is launching an inquiry into whether Canadian ports on the West Coast are luring lucrative cargo business away from their American counterparts in yet another growing Canada-U.S. trade irritant.

The five-member Federal Maritime Commission entered the fray on Wednesday, voting unanimously to hold the inquiry amid complaints from American ports that Canada is unfairly subsidizing the diversion of cargo ships away from its U.S. competitors, particularly in Prince Rupert, B.C.

The agency will deliver its findings to U.S. Congress after it completes the inquiry amid concerns that American lawmakers are mulling over a levy that would tax cargo entering America from B.C. ports.

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"Canadian and Mexican ports are free to compete with U.S. ports for U.S. cargo, but they should do so on a playing field that is not artificially tilted by governments' policies," Richard Lidinsky, chairman of the commission, told the hearing on Wednesday.

At issue is the growing popularity of Prince Rupert, a $170-million port that opened four years ago with $60-million in subsidies from both the B.C. and federal governments.

Cargo ships travelling from China arrive several days earlier on Canada's West Coast than they do at U.S. ports. That's especially true of the port of Los Angeles after ships travel what's known as a circular route across the Pacific Ocean and end up far closer to the Canadian ports of Vancouver and Prince Rupert.

American ports also charge companies the Harbor Maintenance Tax that covers the cost of dredging port channels. Canadian ports don't charge cargo ships a harbour tax.

"So let's say I'm Walmart – my ship gets unloaded in Prince Rupert and my cargo immediately gets put onto a train to Chicago," says Peter Tirschwell of the Journal of Commerce, a trade publication that's been closely following the dispute.

"So the pitch from Prince Rupert is, 'Look, your cargo is going to get to Chicago faster than if it went to L.A., and you don't have to pay this tax.' For a big retailer, that's pretty attractive. But from the perspective of American ports, Prince Rupert is taking cargo away from them."

Don Krusel, president and CEO of the Prince Rupert Port Authority, rejected suggestions that the rapidly-expanding port in northwest B.C. has any unfair advantage over ports in the United States.

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In a statement, Mr. Krusel said Prince Rupert traffic is growing because the port is the closest of any West Coast port to Asia, it has the lowest rail grade to U.S. centres such as Chicago and Memphis, and its terminals are not hampered by urban congestion.

"These – not government subsidies – are the advantages that have made Prince Rupert one of North American's most reliable and efficient port operations," he said.

However, Mr. Krusel added that the Prince Rupert Port Authority intends to participate fully in the FMC inquiry. "[We are]eager to demonstrate that even-handed competition breeds best practices that profit all North Americans."

Two senators from Washington state, Patty Murray and Maria Cantwell, urged the Federal Maritime Commission to launch the inquiry.

Eight members of the House of Representatives made a similar plea last week, as did a Democratic lawmaker from California.

In their letter to the commission, Ms. Murray and Ms. Cantwell point out that the Harbor Maintenance Tax is not collected at border crossings when cargo enters the U.S. on trains from Canada, suggesting it should be.

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"As a consequence, our country's capacity to handle international trade growth is adversely affected," the letter read.

"It is imperative that we level the playing field between international ports and domestic ports so that the U.S. can continue to compete for cargo."

Canadian opponents says that could amount to a tariff of about US$140 per container coming into the United States from Canada.

The Canadian Chamber of Commerce is dismissing the complaints, calling them part of an American debate about taxation that has nothing do with Canada.

"This is a domestic U.S. issue, and should remain one," the chamber said in a statement Wednesday.

"Canadian ports and users are required to pay the full cost of the infrastructure they use. The Canadian chamber will oppose any protectionist measures that will penalize Canadian ports, railways and all cargo carriers and make North America's freight system more costly."

The Canadian Press with a report from Rod Mickleburgh in Vancouver

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