Softwood I - April 27, 2006

Those bemoaning the current softwood lumber deal, which isn't a deal unless AB, BC, ON and Que all sign on, is simply a revision of past deals that the federal government has attempted to negotiate to break the 'log jam' over softwood.

For example, in 1993 Liberal Trade Czar Pierre Pettigew announced a similar deal that would limit Canada's market share to 31.5% and impose levies for exports above that level. BC Trade Minister Mike DeJong said at the time that quotas were 'the price' Canada would have to pay for any negotiated settlement.

The current proposal is only slightly better but it does offer a way forward out of the current morass.Did the Liberals and Pierre Pettigrew sell out Canada when he negotiated that deal like the Opposition is claiming the Tories are doing? No.So why negotiate? The US Homebuilder Association has said this is a bad deal and that Canada was 'on the verge' of a 'total legal victory' in the softwood lumber case. A legal remedy would bolster Canada's moral and political position undoubtedly but it would neither force the US into repaying what it owes nor help solve the problem in the long term.


The bottom line is that there was always going to be a negotiated deal it was only when and how much. As Michael Hart and Bill Dymond wrote in Policy Options almost a year ago, "Negotiations....while difficult and unappealing to those who see an intransigent United States unwilling to live up to its current obligations, at least offer the prospect of putting the issue behind us once and for all."

Any deal has to take into account two main obstacles.First the 2002 WTO decision that said stumpage fees are a benefit to the forestry industry and are eligible for countervailing duties. The US has relied heavily on this decision to maintain their position. It means the current practices in BC, AB, ON and Que will always be problematic.Second, the NAFTA panel's finding that says the mere existence of a vast supply of trees and an efficient industry do not by themselves constitute a threat to US industry that it has to prove dumping in economic and financial terms. The US has legitimate fears of dumping from Canada and this must be addressed in any negotiated settlement otherwise the US industry will be constantly bringing dumping charges against Canada. This has been the way of the world the past 10 years and won't change without a permanent settlement. This means quotas, in some form, will be central to any deal.

Is this a perfect or even a good deal? That depends on entirely where you stand. BC is on board because it will re-open a moribund industry, provide a larger market for its beetle-infested trees. BC is also the biggest player, responsible for 50% of all softwood exports. Ont and Que are not happy since they will have to reduce their share of the market to accommodate BC. If you're in Opposition or among the many who hate the Tories, then it's a boon...you can use it to bat the Tories around for 7 years and claim they sold out (which they haven't any more than the Liberals did in 2003).As for the money, the US is only returning 78%of the duties collected. While 100% would be great, getting $0.78 to the dollar from a nearly bankrupt country is a bargain. Take it and run. What pisses me off is that some of the remaining 22% will be given to the US industry. In short, we're buying off the US industry with our own money.pc