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http://www.canada.com/components/printstory/printstory.asp?id=A63534A4-5155-46D3-86FF-A99E79DE52C5
Gordon Hamilton
Vancouver Sun
Monday, December 08, 2003
Canadian and American lumber producers, weary of two years of trade war, say they are ready to back a softwood peace that replaces punishing duties with a firm cap on Canada's share of the U.S. lumber market.
The five-year deal, worked out by trade negotiators in Washington over the weekend, appears to have support from most of the major lumber companies on both sides of the border. It is expected to return the $10-billion-US-a-year Canadian lumber business to profitability overnight.
After dozens of false starts, the weekend initiative is the first solid indication that after almost three years of poisoned trade relations, Canada and the U.S. are ready to end the softwood war. It is the largest trade dispute between the two largest trading partners in the world.
The softwood lumber dispute has threatened economies in B.C.'s resource-dependent towns, led to mill closures, curtailments and job insecurity for the 270,000 British Columbians who depend on the industry for employment.
But the weekend deal has a price: Canada is giving up almost half the $1.6 billion US in duties already on deposit and accepting volume restrictions on lumber exports.
B.C. Forests Minister Mike de Jong said Sunday he needs to know more about the deal before he endorses it.
"There is a lot of skepticism and it is legitimate to be skeptical. I share a lot of that skepticism. There is risk here and that's what we have to measure. That's what we have to factor into whether we decide to proceed."
De Jong said the cap on export volumes means quota will be allocated to forest companies.
"The companies that are brutally honest with me when we have these discussions say, 'Yeah, this is a hell of a deal if I get all the quota I want.'
"The reality is: Nobody is going to get all the quota they want. Everybody is going to get less quota than they feel they deserve or they require."
A spokesman for International Trade Minister Pierre Pettigrew confirmed the negotiations were productive but there is no signed deal.
"Discussions have progressed this week but we're not at a point where we have an agreement," said Sebastien Theberge. "The discussions and consultations will continue over the next few days."
Pettigrew has said he will not sign a deal until he holds consultations with provinces and the lumber industry.
The Canadian industry expects it will be presented with an ultimatum later this week: Accept what has been negotiated or litigate.
The proposal was described by U.S. supporters as an "out-of-court settlement." It would require Canada to abandon its litigations before the World Trade Organization and North American Free Trade Agreement panels.
The agreement provides Canadian lumber producers with open access to 92.5 per cent of their current share of the U.S. market and a stiff duty on anything over, effectively tightening the tap on the flow of lumber between the two countries.
"This deal will at least allow us to get on with our lives," said Jake Kerr, chairman of Interior lumber producer Lignum Ltd. and a strong supporter of managed trade with the U.S. "We may cut a little less lumber but at least we might make some money at it now."
"We are on board," said John Ragosta, who represents the U.S. Coalition for Fair Lumber Imports, the lobby group that launched the trade action in 2001. "On balance, it is a good agreement and everybody should support it."
Detractors say Canada is surrendering to powerful U.S. lumber interests, who will get to keep 48 per cent of the $1.6-billion US collected in duties as a reward for bringing the trade action against Canada in the first place. Canadian companies get 52 per cent back.
"If this is the best we can do, then let's go to court," said David Gray of the independent B.C. lumber company Mill & Timber.
"This is a complete Canadian surrender. We are leaving a billion dollars on the table. This is unprecedented," said Carl Grenier of the Free Trade Lumber Council.
The council, headed by Tembec president Frank Dotorri, favours continuing the legal battle through the WTO and NAFTA.
Companies are split generally along the lines of major producers who support it and smaller independents who oppose it. Larger companies with established U.S. markets generally flourish in periods of export restraints. Smaller companies, seeking to grow, find they cannot get access.
Crucial issues that remain unclear include:
? How Canadian companies are to receive quota for duty-free exports.
? When the Canadian share of the duties will be returned. Some say it could take 18 months.
? How easily Canadian provinces can get out from under the deal if they change forest policies to meet U.S. demands for market-based timber pricing.
Slocan Forest Products president Jim Shepherd, on track to become the most powerful lumberman in Canada, was one of the first chief executive officers to throw his support behind the deal. Shepherd is to become president of super-company Canfor Corp. if the proposed Canfor-Slocan merger is approved early next year.
"This is the right deal and it is the right time for a deal. It has come to a point where both sides realize there is never going to be a clear winner," said Shepherd.
"It is time to make a compromise and that is what we have done."
The agreement also includes a roadmap to reach eventual free trade in lumber but some described it as clear, others as murky.
"It's the first time we have ever seen a deal that gives us a route out," said Duncan Davies, president of coastal lumber company Interfor.
However, Mill & Timber's Gray said the route out looks like the phoney caves painted on the wall in Road Runner cartoons.
"It's a fraud. The exits are fake. Nobody will get out. The reality is five years of quota."
The route to unfettered free trade requires Canadian provinces to meet the standards of free market in timber pricing laid out in a U.S. department of commerce bulletin. The bulletin has yet to be published.
Provinces cannot apply to get out for at least three years. If three provinces accounting for more than 75 per cent of exports meet the standards, then, in three years they will have free trade.
Otherwise, individual provinces can apply but if they meet the standards will have their allocations increased by only five per cent for the next two years, reaching 7.5 per cent -- or 100 per cent free trade -- after three years.
The U.S. coalition's Ragosta said U.S. lumber interests are sincere in wanting to end the lumber dispute with a durable peace that includes policy changes in Canada. The U.S. expects the policy changes would result in higher timber prices in Canada and higher lumber prices as a result.
"This agreement is set up to encourage long-term reform," Ragosta said.
The 27.2-per-cent duties have been in effect since May, 2002 after U.S. lumber companies filed a trade action in 2001 claiming Canada unfairly subsidizes timber sold from Crown-owned tenures.
Canadian companies initially were able to lower costs and maintain export shipments. However, they have seen profits erode this year with the climbing value of the Canadian dollar, motivating them to seek a negotiated settlement.
And U.S. companies, weary of costly litigation and the market uncertainty caused by the lumber dispute, also wanted an end.
Interfor's Davies said both sides had become fatigued fighting each other. Sharing the duties already collected with American companies rankles him particularly, although he supports the deal over-all.
"I don't think anybody feels good about this. It's the price of getting a deal done," he said of the loss of duties paid.
"The two and a half years of fighting and the billion dollars we are going to forgo in deposits may just simply be the price of getting a deal that has a policy reform package and the long-term durable solution.
"I add it all up, take a deep breath and say it's time to move on."
- - -
THE SOFTWOOD PEACE
The agreement, retroactive to Dec. 6, if it is signed:
- Gives Canada duty-free access to 31.5 per cent of the U.S. market, about 17 billion board feet of lumber at current consumption levels. That's 92.5 per cent of the current Canadian share of 34 per cent.
- Subjects any shipments over that amount to duties of $200 US a thousand board feet, a stiff enough duty to effectively cap production at the 31.5-per-cent level.
- Returns 52 per cent of the $1.6 billion US in duties already collected to Canadian companies, a cash injection that, when it is received, will turn balance sheets around overnight.
- Rewards U.S. companies for initiating the trade deal by turning over $770 million US to them. Biggest winner will be International Paper, the largest forest company in the world, which is expected to reap a $250 million US piece of the Canadian duties.
- Is for five years. The first three are fixed, the last two provide windows to get to free trade. The deal can be extended in one-year rollovers indefinitely.
- Includes an exit ramp to unfettered free trade with the U.S. after three years if provinces meet a new U.S. policy bulletin defining the characteristics of a market-based timber pricing system.
Oringinal post: http://mbarrick.livejournal.com/463100.html