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May 2006 - The Logging and Sawmilling Journal



A New Deal

The new softwood lumber deal between Canada and the United States may not be all that the Canadian forest industy was looking for, but industry officials say it does provide forest companies with a sense of stability going forward.

By Paul MacDonald

Prime Minister Stephen Harper’s comment on the agreed-upon framework for Canada’s new softwood lumber agreement with the United States was at least half-right. “It’s a good deal that resolves this long-standing dispute and allows us to move on,” Harper said.

Well, it is a deal—though not necessarily a good deal for the Canadian forest industry. But it does let the Canadian forest industry, after years of legal battles, move on.

Recapping, the main points of the deal: there are no quota or tariffs at current lumber prices (though there is an export tax and/or volume restraints that kick in at lower price levels—ie under $360 per thousand board feet); some $4 billion—out of a total of $5 billion—in duties will be paid back to Canadian forest companies; and the agreement has a term of seven years, with options for renewal. Not the best of deals, but certainly not the worst.

The Prime Minister noted the agreement is supported by British Columbia, Quebec and Ontario, Canada’s three main softwood-producing provinces. Ontario weighed in with fairly unqualified support of the agreement.

“While this arrangement would require each jurisdiction to make some concessions, Ontario got a critical element—a more reasonable share of softwood exports,” said Natural Resources Minister David Ramsay. Ontario had opposed an initial version of the proposed framework that would have reduced the volume of lumber that the province could export to the US to levels well below historical levels.

“We will lend our support to this arrangement as it will help end a longstanding dispute that has severely affected our forest industry,” said Ramsay.

BC Premier Gordon Campbell supported the softwood lumber deal, saying it is fair for BC and for Canada. There are concerns in the BC industry that it gives the US veto power over provincial forestry policy, however. Just a day after he said BC would support the deal, the Premier wrote a clarification letter to Prime Minister Stephen Harper outlining concerns about a number of issues. Support for the agreement outside of political circles was lukewarm—and often underwhelming.

The BC Lumber Trade Council represents the largest forest companies in British Columbia, who produce the vast majority of lumber in the province. It is a true industry heavyweight: its member companies account for about half of Canadian lumber production and half of Canadian lumber exports to the United States. That said, the council gave only conditional support to the framework agreement to resolve the lumber dispute, pending a review of the final term sheet.

“Each company had to assess the framework agreement through its own lens and individual analysis,” said John Allan, president of the BC Lumber Trade Council. “Agreements of this nature are rarely perfect and the complexities of the issues will always make unqualified support elusive.”

In neighbouring Alberta, Trevor Wakelin, chair of the Alberta Softwood Lumber Trade Council, said the framework“sets the foundation for discussions as we move toward finalizing a long-term agreement to end the softwood lumber trade dispute.”

The devil, Wakelin implied, is in the details of these agreements. “Given the complexities of this file, the challenge ahead is still formidable—working out the legal wording, details and the mechanisms to implement a lasting agreement as well as the return of duties paid by Alberta lumber producers.”

A significant amount of work by all lumber producers, provincial governments and the Canadian government is still required before a formal deal is signed to resolve the long-standing softwood lumber trade dispute with the United States, the council says.

“Work will begin immediately on analyzing the situation and working through scenarios of how any agreement will be implemented within the Alberta lumber industry,” added Garry Leithead, Director of Special Projects with the Alberta Forest Products Association.

The deal should return more than $100 million in duties to Atlantic Canada lumber producers and help bring some stability to the industry, according to Diana Blenkhorn, the president and CEO of the Maritime Lumber Bureau.

Blenkhorn noted that since the beginning of this most recent round in the softwood lumber dispute, beginning in March 2001, Atlantic Canada, both industry and government, has supported the concept of a negotiated settlement that would provide a long-term, durable resolution.

The forest industry in Atlantic Canada has maintained that because of separate agreements it has had with the US over the years, it should never have been part of the dispute in the first place. Most of the softwood lumber produced in the region comes from private land and the American accusations of subsidy were against lumber produced on Crown land, in provinces outside of Atlantic Canada.

To maintain its exempt status, the new deal requires the continued use of the Maritime Lumber Bureau’s certificate of origin for lumber exports to the US.

An interesting point is that Blenkhorn noted that refund amounts, because of a now much stronger Canadian dollar, will be devalued by about 30 per cent of the rate they were paid going in.

On the union side, the United Steelworkers (USW) says the hastily announced framework agreement with the United States was made at the expense of and without consultation with workers and their communities.

“It’s a deal Stephen Harper has negotiated in haste to prove to Canadians that he has a better relationship with the Bush Administration than the Liberals,” said USW National Director Ken Neumann.“But what it amounts to is caving in and accepting less than what international trade bodies have ruled we are entitled to.”

Ontario/Atlantic Director Wayne Fraser said the deal, which contains quota limitations, is an insult to forestry workers in Ontario, where mill closures have devastated northern communities.

“Not one forestry-dependent community has been consulted in any meaningful way,” said Fraser. “Stephen Harper, who knows his government has a short mandate, is trying to do as much as possible in a short time-frame for the US and its forest companies. He is willing to prove his loyalty to George W Bush and corporate interests at the expense of working people and their communities. It’s a sell-out financed by Canadian taxpayers.”

On the US side, the Coalition for Fair Lumber Imports expressed its support for the settlement of what it continues to refer to—predictably— as “unfairly traded Canadian softwood lumber.” In a statement that many in the industry would find very curious—because of the lack of attention the lumber dispute received in Washington in recent years—the coalition said it applauded the “tireless efforts” of Bush Administration officials who negotiated a means of offsetting Canada’s “unfair lumber practices.”

From the Canadian perspective, the deal was probably best characterized by David Gray, CEO of BC’s Mill & Timber Products Ltd, who was quoted as saying the deal is like Buckley’s cough syrup. “It tastes awful,” said Grey, “but we hope it works.”

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