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May 2003



The war against Iraq—and the follow-up involvement there—has thrown softwood lumber off the radar screen in the US.

By John Clarke

With the US preoccupied with Iraq, the Canadian industry continues to struggle with the American countervail on softwood lumber.

There is no record, at least not in the public domain, of Prime Minister Jean Chretien giving a thought to the softwood lumber industry before telling the Americans Canada would not go to war with them in Iraq. Whether lumber will suffer any more than any other industry from angry American reaction may depend on the graces of the bruised egos in Washington who’ve been fighting with Canada on several trade fronts. But certainly lumber is first in line for any collateral damage that may fly from a conflict that the prime minister curiously believes the US had won before the firing started.

The Americans are outraged, which Ambassador Paul Cellucci took no pains to cloak diplomatically when he told a Toronto audience shortly after the war started that “a lot of people in Washington are upset”—surely code for “watch out, Canada.” Cellucci, who was apparently speaking after consulting with the White House, was especially annoyed by some personal attacks on President George W Bush, such as Resources Minister Herb Dhaliwal’s description of him as a failed statesman “who had let the world down.” When tempers later cooled Dhaliwal backtracked, claiming his remarks were misconstrued and that he was not at all anti-American.

Cellucci played his part by noting, with thanks, that Canada had warships in the Middle East helping the war effort, even if Ottawa was insisting they were fighting terrorism, not the Iraqis. US Commerce Department undersecretary Grant Aldonas managed to keep lines of communication open between the softwood negotiators. And the BC government produced a long-anticipated package of forest policy reforms, which Aldonas has promised to process through his department as quickly as possible. Aldonas thinks something can be done to move negotiations along, even if the White House remains preoccupied by the war, a view shared by government officials north of the border.

Removing a ban on log exports would be a deal breaker for BC.

But the softwood industry is under no illusions. It believes it has taken a hit. The executive offices have complained for years that softwood problems are not much in mind at the White House and say now that Iraq will make the situation worse. “The war is a huge thing,” says David Gray, chief executive officer of Mill and Timber Products Ltd in Surrey, BC and co-chairman of the Canadian Free Trade Lumber Council. “To the Americans, there is no place for a piss-ass thing like softwood. In the natural scheme of things we are even way behind what happens to Peewee Herman. He has described BC’s reforms as very significant. But whether—in the long run—they will be enough for the US Coalition for Fair Lumber Imports (which must sign off on any deal) is another matter. It has always been hard to please. The risk persists that Iraq will be so distracting that there will be a long delay in getting all the i’s dotted and that anything might derail even the best intentions.

BC will eliminate rules requiring sawmills to produce at set levels regardless of market conditions and to have the wood processed in local mills close to logging areas. Twenty per cent of the forest, held in large corporate tenures, is to be sold at public auction. With other timber from federal and privately-owned land and areas to be allocated to First Nations groups, the provincial government says as much as 50 per cent of the working forest will be open to the auction market by 2023. Analysts estimate the package will take at least three years to become fully operational, even without the problems caused by the cross-border skirmish over Canada’s neutrality on Iraq. One of the biggest difficulties is the question of log export bans.

The Americans have pressed for their removal from the early days of the dispute. To them, you can’t have open auctions if there are restrictions on logs going south where many of the bidders may come from. But for BC Forests Minister Mike De Jong lifting the ban would be a deal breaker if it became a bottom line essential for the Americans. In spite of that, De Jong and Aldonas want negotiations to go as long as necessary for a long-term agreement. Another problem is continuing mistrust between BC and Quebec on approaches to a solution. “We are not on the radar screen. We were barely there before this. My view is that for the foreseeable future the softwood dispute is not going to get any more attention. “How the war ends up will determine how relations between the two countries can be patched up. I happen to agree with Chretien’s view of the war and I hope I’m big enough not to be affected on that by the softwood problem.”

Still, Aldonas believes the war has opened a window for renewed talks. Quebec believes BC should have brought in its reforms long ago. It agrees that BC lumber is not subsidized. But the current stumpage system has given the US Coalition enough ammunition to accuse the whole Canadian industry (except for the private forest land in the Maritimes) of subsidizing exports. Quebec changed its forest practices in 1986/87 by introducing timber management supply contracts between the provincial government and the industry, under which more wood goes directly to the sawmills and residual chips to the pulp and paper mills.

Stumpage rates are based on prices in private timber areas representing 25 per cent of the total forest. Whether this will be enough if BC does move to a 50 per cent share may be moot in 2023. In any case, Jacques Gauvin of the Quebec Forest Industry Council insists, “it is really a market-based system in which stumpage prices reflect a real situation where there are lots of buyers and sellers.” Quebec sees no need for more reforms, despite pressure from the Americans, and fears it may be isolated from negotiations. But Frank Dottori, CEO of Montreal-based Tembec Inc and one of the strongest advocates of processing the dispute through the World Trade Organization and the North American Free Trade Agreement, has warned against Quebec being marginalized. “If there isn’t a deal including Quebec, there’s no deal,” he says.

All of which throws new light on the WTO and NAFTA factors. The legal route is still Quebec’s preferred option. If post-war reconstruction in Iraq runs into more squabbling among United Nations members, softwood negotiations and legislative changes could be superseded by WTO and NAFTA rulings later this summer and fall on the countervail and dumping. Carl Grenier, executive director of the Free Trade Lumber Council, says: “In BC there is a notion, still alive, that if you do a deal, you are going to come off better than if you don’t. There’s no evidence of that. The past is no guide and doing a deal is an expensive way to get a settlement.”

As for BC, fears that WTO and NAFTA decisions would only provoke the Americans into coming after us, Grenier says: “The coalition has been weakening in the last few years. Successive administrations have grown tired of their constant complaining. The Coalition knows that legally they will lose again.” But even if Canada were not to get everything it wants from the WTO and NAFTA, Grenier believes it will get enough to gain a much stronger bargaining position. Whether in the end that really matters is lost somewhere in the murk of the Iraq war. The Canadian industry is well aware that in the best of times softwood is a minor thing to the Americans, rarely showing up in their media. If anger over Canada’s neutrality were to continue, the White House might not be in much of a mood to agree to anything. In that case, softwood might find itself off the radar screen altogether for a long time.

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