Canadian businesses are about to get caught in the political cross-fire between U.S. President George W. Bush and Congress, says an international lawyer who specializes in NAFTA.

Barry Appleton, managing partner of Washington, D.C.-based law firm Appleton and Associates, says Bush will skirmish with Congress over Canada-U.S. trade issues as he presses for increased spending on the war in Iraq.

The president faces a tougher fight for approvals after his Republican party lost control of the Senate and House of Representatives in the U.S. mid-term election.

"He is announcing policy changes across the board," Appleton told a recent economic forum held in Vancouver. "He does not want to go quietly out into the night."

Barry Appleton

Appleton was referring to the fact that Bush's second and final term as president is nearing its end, in 2008. He will be required by law to leave office, because U.S. presidents are only allowed to serve a maximum of two four-year terms.

Appleton's comments come in wake of the controversial softwood lumber deal and tighter U.S. rules on cross-border travel, which have resulted in a sharp decline in U.S. visitors to Canada.

"Washington, D.C., is in a tremendous amount of flux right now," said Appleton.

Trade is one of the most important issues coming forward for Congress, he contended.

"Most of the people who were recently elected don't like trade very much, and they don't like trade with Mexico," said Appleton. "They don't really know that much about Canadians, unless they happen to be in the border states, in which case you substitute the word Mexican for Canadian and say the same thing (about Americans not liking trade with Canada)."

The Democrats have a resounding majority in the House of Representatives but a "tenuous" one-seat advantage in the Senate, and South Dakota's Democratic senator is recovering from a stroke and cannot vote unless he shows up for work.

Under the laws of South Dakota, said Appleton, the state's Republican governor could succeed the senator and there would be no requirement to hold an election.

That makes a difference to the Democrats' balance of power and to Canadians, said Appleton, who was born in Philadelphia but grew up, and still lives and works, in Toronto and has another home in Vancouver.

Jock Finlayson, chief economist and vice-president of policy for the Business Council of British Columbia (BCBC), agreed the U.S. mid-term election results have weakened the Bush administration's ability to set the policy agenda on a range of issues, including trade.

"That alone is not in our interests in terms of Canadian businesses that do business across the border," said Finlayson.

The Democratic party and its newly elected members of Congress also have a "more protectionist bent than the Republican party. There's very little that we can do," he said.

Finlayson called on Canadian diplomats to convince members of Congress that they have an interest in maintaining good trade relations with Canada, abiding by the terms of NAFTA, "and not rushing to judgment on issues that lie between us."

"Some conflicts are inevitable when you have a $300-billion-plus trade relationship, as we do with the Americans," said Finlayson.

One of the first issues coming up will be the renewal of the U.S. Farm Bill, which will have implications on B.C. and Alberta as American farmers seek more subsidies for their products.

Appleton suggested any attempts Ottawa makes to offset negative effects through international legal challenges won't work, "because Americans like to put politics first and then deal with who wins or loses on NAFTA or (World Trade Organization panel) decisions.

"People know what I'm talking about when they think about softwood lumber," said Appleton. "Politics and votes are what count."

Canada and the U.S. scrapped over lumber tariffs despite NAFTA and WTO panel rulings in Canada's favour. Never mind the supposedly "special relationship" Canada has with Washington because it is America's largest trading partner, he added.

"Sometimes we say: 'Well, we have a special relationship; we don't really have to worry about these threats,' " said Appleton. "Of course, the U.S. has a special relationship with Canada ... The president now says he has a special relationship with Britain ... They have a special relationship with Jordan ... They have a special relationship with Singapore, and about four months ago, I was at a reception where the secretary of state talked about a special relationship with Burundi.

"After so many special relationships, I'm not sure we're really special anymore. What we are is an interest."

The BCBC's Finlayson agreed "totally" that Canada no longer has a special relationship with the U.S. "It disappeared a long time ago," he said.

That means Canada has to do a better job of negotiating with the U.S., but Canadians usually "fall apart" when it comes to asking for more from Washington, said Appleton.

"We could solve a lot of problems, preventively, if we can get a better lobbying opportunity rather than waiting until we have another fight - and everybody's battling over conditions in the ring," he said.

When it comes to tourism, said Appleton, Ottawa must allocate more funds toward lobbying rather than just focusing on promoting Canadian destinations. Ottawa also needs to set separate budgets for marketing and lobbying.

"The money for lobbying in Washington is the same money for advertising - and that's a mistake," said Appleton.

If the U.S. attempts to limit its trade with China, that will affect Canada's Pacific Gateway, he added, noting B.C., which is developing many new port and infrastructure projects as part of a bid to increase Asian trade, will be the hardest hit.

But Canada still holds considerable clout when it comes to alternative energy. Congress will consider two major spending bills related to the development of ethanol, which is used in conventional gasoline, and alternative fuels including biodiesel from cellulose fibre.

Cellulose-based ethanol can be produced from wood waste through an enzymatic process that is more energy-efficient than the fermentation process now used to make the fuel from corn, fruit, sugar cane and other plants.

B.C., which has an abundance of wood, has the most to gain, while Canadian forest companies that operate in the U.S. could be the earliest to make inroads in that area.

"You're going to see massive amounts of (U.S. government) spending" on alternative energy, said Appleton.

Since more than two-thirds of the U.S. energy supply faces caps on carbon emissions, ethanol and other biofuels will increase dramatically, he said in an interview.

"I'm fundamentally convinced that green economics are actually gold economics," said Appleton. "There's a lot of money to be made. Environmentally sustainable businesses will probably save - heavily - our business environment."

(Monte Stewart can be reached at monte@businessedge.ca)