IT'S ALL OVER BUT THE TEARS: SOFTWOOD GOES TO GROUND

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IT'S ALL OVER BUT THE TEARS: SOFTWOOD GOES TO GROUND

On November 22, 1999 CEOs representing forestry associations in Alberta, British Columbia, Ontario, and Quebec met in Vancouver. They agreed that the Canada-US Softwood Lumber Agreement (SLA), scheduled to expire in March 2001, should not be extended, and that their objective was to secure unencumbered access for Canadian softwood to the US market. This was fortunate insomuch as the previous month US officials had informed the Canadian government that the United States did not envision any renewal of the SLA. Canada was advised that its timber management system needed to be reformed or the country would face yet another countervailing duty investigation. In the event, Special Agriculture Negotiator Peter Scher's letter to Canadian Minister Pettigrew in September 1999 has become the basic framework for the initiation of bilateral negotiations in the autumn of 2001.

None of this prevented foolhardy time wasting on the Canadian side. Canada's trade minister, Pierre Pettigrew, was quite keen on seeing the export-limiting agreement expire, even though it successfully averted a serious trade dispute five years ago. Mr. Pettigrew was unwilling to negotiate a new agreement because he thought that Canada was doing nothing wrong. Instead, he proposed that a panel of experts be named to recommend a way to resolve the dispute.

April 2 2001 was the first business day after the 5-year-old agreement governing softwood trade between the United States and Canada expired. On that day the US Coalition for Fair Lumber Imports, a group of lumber mills, timberland owners and loggers who represent 75 percent of US production, filed petitions for countervailing and antidumping duties with the US Department of Commerce.

At an April 4 Liberal Caucus meeting, Canadian Prime Minister Chretien stressed that relations with the US were deteriorating and that Canada would need to examine its capacity to pressure the US on several issues, including the Kyoto Protocol, US missile defense plans, Alaska oil exploration, and the softwood lumber question. In a sense, it appeared that the highest reaches of the Canadian government believed their case for unimpeded access to the US market was irrefutable, consistent with NAFTA, and therefore immune to US trade remedy laws.

In May 2001, Canada lost a key WTO panel ruling on softwood lumber but, according to a report from the US Senate Finance Committee, tried to claim victory to prevent negotiations in the bitter trade dispute. The WTO panel probing whether Canada's ban on the export of raw logs was a subsidy dismissed the case brought by Ottawa, rejecting it as premature. Thus, having lost any pretense of avoiding negotiations with the US, Canada has had to face the music over the last few months.

On August 9, 2001 a 19.31% countervailing duty was levied on Canadian (but excluding Atlantic Canadian) softwood lumber shipments to the United States and the implementation of an anti-dumping duty is still pending.

As we have reported over the last eighteen months (see for example March 2000, Softwood Lumber Trade Realities), there is virtually no chance that Canada will secure open access to the US market for softwood lumber unless there are fundamental changes in the domestic Canadian timber management regime.

After much huffing and puffing that their rights to access mean no negotiations are needed, the Canadian government and the provinces are getting a dose of reality. By early October, Canadian and US negotiators had made progress in developing common ground on provincial stumpage practices. During the September - October talks, Canadian officials reviewed with the US government provincial forest policies, particularly those in British Columbia, Quebec, Alberta and Ontario. A round of meetings was dedicated solely to practices in British Columbia.

BC forest industry officials now regard the US position as characterized by the view that the trade dispute is an irritant that should be resolved so the United States can concentrate on terrorism. On this basis, David Emerson, co-chairman of the BC Lumber Trade Council, suggested in early October that an agreement might be reached "within the next couple of weeks." Someone should remind BC industry officials that they are the only ones who have even attempted to remotely equate the softwood dispute with the war on terrorism.

Reflecting the Scher letter, previous discussion between President Bush and Prime Minister Chretien has been clear that the United States wants a solution to the dispute that is based on changes to Canadian practices relating to stumpage rates and land tenure, rather than trade measures imposed at the border.

The BC government already has tabled proposals for making Crown timber pricing more market sensitive. Upcoming bilateral governmental meetings are expected to examine in detail specific policy changes British Columbia is prepared to implement to achieve a long-term, policy-based solution. US and Canadian officials met in Vancouver October 17 to discuss adjustments British Columbia might be willing to make to its forest policies. Canadian and US officials also met in Montreal October 22 for similar discussions with Quebec and other lumber producing provinces. It is not clear however that BC stumpage reforms will go far enough to satisfy the US government or industry players.

If the US delegation, led by Deputy US Trade Representative Regina Vargo, holds to the current strategy, Pettigrew's wobbly "united front" will see the wheels fall off. This is all the more likely as Canadian industry job losses and financial costs begin soaring during the autumn. Some reports have suggested that BC alone could face up to 30,000 job losses in the lumber industry.

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