CANADA - US SOFTWOOD LUMBER UPDATE

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CANADA - US SOFTWOOD LUMBER UPDATE

Canada has complained to the World Trade Organisation about US resistance in panel selection on the softwood lumber dispute. The Canadian Trade Minister Pettigrew has written to WTO Director-General Moore complaining that US officials are delaying appointment of representatives to a WTO panel to adjudicate Canadian allegations that US actions against softwood imports from Canada are illegal under international rules. Canada brought the WTO challenge to US actions after the US Department of Commerce imposed a 19.31% preliminary duty on imports of Canadian softwood.

Mr. Moore has 10 days to respond to the Canadian request that he step in and appoint the remaining panelists. Mr. Moore might better use his remaining time addressing developing country implementation issues. Though litigation is Track I of Canada's faltering defense strategy, the preliminary duty actually expired at the 120-day limit December 15 2001, rendering the dispute panel academic.

Track II of the Canadian strategy is to bring the Americans to their knees in face-to-face negotiations. With thousands of layoffs and erosion of corporate income statements in British Columbia, the Canadian government continues to wear its Pollyanna dress and matching rose-coloured glasses. A negotiated deal, the public is assured, is possible and progress is being made. The Canadian lumber industry is uneasy with no signs of progress since before Christmas. The Canadian Lumber Remanufacturers Association reportedly called the letter from Mr. Pettigrew "too little, too late."

Trade Minister Pettigrew met with US Trade Representative Robert Zoellick January 21 in Geneva to discuss bilateral trade issues, specifically the $10-billion softwood lumber dispute. Mr. Zoellick reportedly told the Canadian that the US industry is not willing to accept piecemeal Canadian measures to settle the softwood lumber dispute. Mr. Zoellick gave a summary of new US industry proposals. It appears that the Canadian Minister said that from Canada's perspective the new proposals were not likely to be a sufficient basis for a settlement.

Talks were suspended by mutual agreement in December 2001 to give the US lumber industry time to respond to a series of Canadian proposals for reforming the provincial stumpage system. In a series of proposals that were delivered to the US special envoy on softwood lumber Marc Racicot in Washington January 22 - the day after the Zoellick/Pettigrew Geneva meeting - the US industry wants Canada to completely revise its forest tenure system, remove log export restrictions, and make a number of policy changes to mandated requirements (such as annual minmimum cuts, and other conditionality). The US industry also wants the provinces to accept bridging provisions in which a sliding scale export tax is directly linked to the implementation of provincil policy and legislated modifications. These bridging conditions have not yet been discussed with the Canadian side, but are expected to be introduced once the US assesses there are no more concessions left to wring out of Canada.

The US proposals are a confirmation that the lumber reforms proposed by the major producing provinces simply are not enough to end the long running softwood lumber dispute. The US Coalition for Fair Lumber Imports has described Canadian proposals as "inadequate." Specifically, British Columbia has offered to make 13% of its annual timber harvest available for competitive auction. Bearing in mind that 19.11% of the 19.31% preliminary countervailing duty was stumpage related, it seems obvious that the US will not back down for anything less than a sweeping reform of provincial stumpage practices.

Indeed, the US Coalition for Fair Lumber Imports considers the most recent offers made by British Columbia, Quebec, Ontario and Alberta to be only an entry point to obtaining provincial agreement to sell the vast majority of provincially controlled lumber at North American market prices. The US industry appears to have decided that punitive duties on Canadian softwood lumber are a satisfactory outcome if the provinces - especially British Columbia - will not agree to auction at least two-thirds of their annual timber harvest. In other words, the US industry objective - to establish a competitive market-pricing regime for Canadian lumber - remains firmly in place.

The main challenge for the US industry is to convince Canadian producers that, if they were to do away with the stumpage based system, that the US industry would not disrupt bilateral trade in lumber at a future date. In other words, the "Team Canada" united front is in sufficient disarray that the provinces and the Canadian industry are discussing among themselves what a guarantee of market access could entail. Mr. Racicot will not be available to give the Canadian industry the assurances it now seeks. Mr. Racicot was elected to chair the Republican National Committee on January 18. In his new capacity, he will be responsible for the 2002 Congressional election preparations. It is clear that he will soon abandon his role as special envoy, and throw the issue back into the bureaucratic process from whence it came. Mr. Racicot will give his assessment of the softwood lumber dispute to Mr. Zoellick and other officials before the end of the month.

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