SOFTWOOD STILL ON TABLE

The US Department of Commerce (DOC) on March 22 2002 announced the final determinations in the antidumping and countervailing duty investigations of Canadian softwood lumber. The softwood lumber duty determinations came as a rude awakening to the Canadians, who appear to have put too much stock in the fantasy that President Bush would intervene in a statutory trade remedy process to avert the imposition of countervailing and antidumping duties on Canadian softwood lumber exports to the United States.

Despite the insistent bleating of Canadian business executives and their political tools, there is a growing body of empirical research to suggest that Canadian claims of free trade purity are suspicious at best. To be sure, there is sufficient question of the Canadian claims to suggest that the time has arrived to reposition the Canadian industry to compete globally.

The US DOC ruling found the net subsidy rate to be 19.34%, up from the preliminary duty rate of 19.31%. For the firms investigated in the case, the dumping margins varied from 15.83% in the case of Weyerhaeuser to 2.26% for West Fraser. For all other firms not specifically investigated in the case, the dumping margin is 9.67%, down from the preliminary rate of 12.58%. In effect, the average combined duty rate to be applied to Canadian softwood entering the US from mid-May 2002 will be about 29.01%, in contrast to the combined preliminary rate of 31.89%.

20% of all the lumber shipped to the US from Canada comes from the Prince George area. The biggest producer of lumber in the Prince George region is Canfor. Canfor attracted a 5.96% dumping margin, down from the preliminary rate of 12.98%. Nonetheless, the combined duty puts Canfor in the difficult position of having to sell at 25.3% more, slowly erode their income, or start reducing operations. The immediate business decision for some Canadian producers was to begin shutting down sawmills. Upon hearing the US DOC decision, Doman Industries Ltd. announced its intention to shut down three of nine sawmills putting 400 employees out of work in British Columbia. In Manitoba, the story was the same, with Tolko Industries Ltd. announcing 420 layoffs.

The Canadian industry is poised to lose between 5,000 and 10,000 jobs over and above the estimated 15,000 jobs already lost mainly in British Columbia. It is clearly time to structure a new approach on the Canadian side before Minister Pettigrew manages to throw another 15,000 forestry workers out of jobs.

Here are a few policy considerations that should be examined more closely in the near future:

1. The United States has accepted that the “Maritime Provinces” (by which they refer to New Brunswick, Prince Edward Island, Nova Scotia, and Newfoundland and Labrador) operate timber systems that adhere to market principles. In effect, ever since the 1996 Softwood Lumber Agreement, these four provinces have been deemed exempt from countervailing duty investigations. It is time to consider the feasibility of moving the major producers in the direction of the Maritime market based system.
2. Distance Minister Pettigrew from the negotiations; he is causing more harm than good, with a grating persona that American lumber leaders don’t understand and don’t like.
3. The federal government has flip-flopped on this issue more times than a beached whale. This has arisen in part because of ill-conceived negotiation objectives, but also because Canada has suffered from the charge leveled at the US government: the domestic lumber lobby has had a large influence on shaping the national position, often to the detriment of long-term interprovincial and federal-provincial consensus building. There is a definite need to reassess Canada’s objectives as they have morphed dramatically from the initial pursuit of free lumber access to the US market. As matters stand, Canada is very close to entering into a new SLA for another five years, with no permanent resolution of the issue. This outcome would represent a complete collapse of the Canadian strategic intent.
4. The current pursuit of panels under NAFTA and the WTO is of limited practical value to the communities on the verge of losing their main economic generator. NAFTA and WTO actions initiated today will likely proceed to the appellate stage, which means the cases may not be concluded until 2003 or 2004. While these allow governments and Ministers of the Crown to save face, they also illustrate the limited potential of trade agreements to offer expeditious remedies to trade disputes. This highlights the absolute imperative of continuing to negotiate with the United States in the months to come.
5. A definitive settlement of the lumber trade issue can most likely be achieved only through determined movement in Canada toward a market-based system. Ultimately, all or almost all Canadian lumber must be sold through genuine competitive bidding practices. In this context, market pricing practices and policies will need to be monitored to ensure appropriate regulatory enforcement. In addition, it is quite likely that aspects of tenure will need to be reformed (mill owners long term beneficial tenure) and mandates (log export restrictions, local processing requirements, minimum harvest requirements, etc) will need to be eliminated or liberalised.
6. Although Canada’s offshore lumber markets account for less than 15% of total exports, a serious effort to expand and diversify export markets for Canadian softwood lumber is overdue. In the longer run, export market diversification is an additional source of income and job security for forestry-based communities.
7. Finally, acceptance of market solutions does not imply that the resource is privatised, or that public ownership and oversight is being surrendered. Nor does it mean that the Canadian market solution must be a cookie-cutter model imported from the US. The US government and industry have accepted this view, which is an essential component for Canadian players to entertain the market concept at all.

The US International Trade Commission will issue its final determination of injury on or about May 6 2002, with a public announcement expected May 7. In the event that there is a final affirmative determination of injury, the duty order will be effective on or about May 13 2002. At that time, Canadian exporters will be required to deposit the associated duty with US Customs for subsequent distribution to the aggrieved US industry players.

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