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Complex case

Even though the Americans have announced a 19.3 per cent duty, the softwood lumber case with the United States continues to get even more complex.

By John Clarke

There are, believe it or not, 30 lawyers working on the mysteries of the softwood lumber dispute with the United States. But there may be enough work for a hundred more before this puzzle is finally solved. The US came down with a preliminary determination in August that will result in a 19.3 per cent duty on exports of softwood lumber from Canada into the American market-a move that will hit the industry hard. Some of the clues to solving this puzzle are in a 150-page questionnaire from the US Department of Commerce, a 100-volume response from the Canadian government and in subsequent exchanges of information. The dispute keeps getting more and more complex, with missed decision deadlines not unexpected. Washington has declared it an "extraordinarily complicated" situation. First, 14 US senators urged the Commerce Department to find "critical circumstances" to speed up the countervailing duty process, fearing a big increase in softwood shipments over the border after the quota agreement ended March 31. 

No surge more than an acceptable 15 per cent occurred, however. Then 100 congressmen wrote to President George W Bush, saying countervailing duties would be extremely damaging to the US economy. In July, Yale University economist William Nordhaus declared categorically that stumpage in British Columbia-the main target in American sights-is not a subsidy, to which John Ragosta of the Coalition for Fair Lumber Imports replied "this is all obfuscation." Shortly after that, the Americans exempted the Atlantic Provinces from any subsidy countervails that might be ultimately applied because their lumber is from private woodlots. 

This puzzled the Crown timber industry in the rest of the country. The Atlantic region had originally been targeted along with the rest of the country, yet its timber has always been from woodlots. No matter, the American Consumers for Affordable Housing claim countervails would add $2,000 to $4,000 to the average US house price. And 25 times more American jobs are dependent on Canadian softwood-through the US housing industry-than are provided by the US lumber industry. In the midst of all this spin and counterspin, Canadian unity on the file is wearing a little thin. The Montreal-based Canadian Free Trade Lumber Council says the only objective should be free trade and cites a preliminary ruling by the US International Trade Commission as supporting evidence. 

The Commission says there's been no injury to the US industry from Canadian imports, although there is a possible threat of injury. BC is not so sure that the Americans won't find a way around any roadblock. So concerned about Canada's bargaining situation is the new Liberal government in Victoria that in July it sent Forests Minister Mike de Jong to Ottawa to seek a "unified" position-this more than three and a half months after the old deal died. At the same time, anti-dumping allegations by the US Coalition began to emerge, especially in Quebec, as a greater danger than the subsidy charges because the system makes it easier for the Americans to win on dumping. 

It may take as long as five years to sort through the mountains of paperwork before there are any final answers, which will likely come at the North American Free Trade Agreement and World Trade Organization levels. Ottawa and some in the Eastern Canadian lobbies see the preliminary injury decision as a key development for Canada. After five years of managed trade under the quota agreement, it would have been hard for the Trade Commission to find that the US industry had been hurt. But Ottawa is nevertheless "delighted." "By finding only possible threat," says one official, "the ITC seems to be sending a message to the US industry that its injury case is suspect. 

It had better have a solid case to make and that will be a tough row to hoe." Carl Grenier, executive director of the Canadian Free Trade Lumber Council, is even more emphatic. "It is easier," he says, "to defend against an allegation of threat than to say whether we're already injuring the US industry. What this means is that we stand a good chance of winning the case even before we get to the appeals process. "Our best chance is to have the ITC decide there is no threat of injury and that's the end of it. We are into free trade." A final injury decision is more likely to come after, not before, the countervail and anti-dumping cases have been processed. 

The die may have been cast by then. In any event, the Canadian Free Trade Lumber Council's confidence is not universally shared, even in Quebec. Jacques Robitaille, president and executive director of the Quebec Lumber Manufacturers Association, calls the situation a "surprise box." "We are not causing injury to the American industry," he says. "But it's easy for the Americans to say otherwise." To him, the chances are high that the ITC's position will be maintained. The same point is made by Bob Plecas, until recently president of the BC Lumber Trade Council. He says: "Let's make no bones about it. We actually lost the (injury) case. We won on half of it. We have a defence to threat. But we looked at their cases and the fact patterns over the last 10 years and in exactly 50 per cent of the injury cases they proceeded with they found both injury and threat." 

To Plecas, the eastern lobby reflects an industry which goes to the woods for chips and benefits from sawn lumber as a residual. "Eastern companies have bottom lines in the 9 per cent to 10 per cent range," he says. "BC companies, which are mainly in sawn lumber, have bottom lines nowhere near double digits. With an economy like those in the east, you have a different view." But the Free Trade Lumber Council doesn't want any hint of compromise on any of the issues and feels fortified by those 100 congressmen. It insists that American countervail and dumping threats are meant only to draw Canada into negotiations as a faster and cheaper way to get what they want than through the adjudication processes. 

They show the Americans are less confident than they pretend and are nothing more than a "transparent device to pressure Canada into negotiations." Meantime there are rumblings that the US Coalition is running short of cash. The Georgia-Pacific corporation has withdrawn funding. Neither Louisiana-Pacific nor Weyerhaeuser, which operate on both sides of the border, belong. If there is a cash shortage it may hamper the Coalition's ability to press its case. That idea is discounted in BC. A bipartisan motion in the US Congress has called for negotiations or imposed import restrictions if they're rejected. The lumber lobby there is considered strong enough that the Coalition's agenda will be promoted one way or another. 

Whether the dumping or subsidy allegations will make the final running is not yet clear. Robitaille says subsidy "has been rather easily refuted at international dispute panels but the real threat comes from dumping." "It's more frightening because anti-dumping action is a more efficient tool for the Americans, " he says. "It's harder to get rid of dumping measures once they're in place." An American investigation of six large Canadian corporations-Canfor, West Fraser, Slocan and Weyerhaeuser in BC and Abitibi-Consolidated and Tembec in Quebec-set off alarms in Canada because its findings, if any, were to be applied across the country. This would be highly prejudicial to regional interests which is why Ottawa and the provinces sought to tailor any countervails to regional conditions. 

The Free Trade Lumber Council calls the investigation "highly intrusive" anyway and a "disguised plot to get Canada to settle again on the more traditional subsidization complaint, itself without merit." It argues that even under American law, Canadian companies accused of dumping would be able to structure future sales so that there are no margins and therefore no duties to be levied. But the notion that the Americans will always find a way is deeply ingrained in the BC lumber culture, which makes negotiations a credible option. The mysteries in the softwood dispute are as much political as technical anyway. If the answer is political, the work of all those lawyers on the technical merits may not mean much. Unless, that is, they can really prove there is no threat of injury to the American lumber industry. That would be the end of it. Wouldn't it?

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