Softwood capitulation part 2

Columnist Paul Willcocks weighs in on the bad softwood lumber deal:

VICTORIA – The softwood deal that David Emerson and Stephen Harper are pushing is so bad it’s hard to imagine what they’re thinking. The U.S. lumber industry wins; Canada loses. Canadian companies hand over $1 billion in to the U.S., with about half of it going directly to their American competitors – a reward for imposing duties that Canada and B.C. have claimed were illegal.

In return, Canada gets pretty much nothing. B.C. and Canada had two objectives when the latest stage of this battle started four years ago. Free access to the U.S. market for our lumber, so companies could compete. And an agreement that would last long enough to let companies and communities plan and invest with some confidence.

The proposed deal delivers neither. It does let Harper and George Bush talk about solving the trade dispute when they meet in Washington this week. Perhaps Harper hopes it will also increase the chances of co-operation on other issues.

But for Canada’s forest industry and for communities that depend on the sector, it’s bad news. There is no free access. The agreement attempts to keep Canada’s share of the U.S. market below 34 per cent – about where it was under the former softwood deal that Canada considered unacceptable.

The mechanism is different. The new deal uses timber prices to trigger trade barriers. When American prices are greater than $355US per thousand board feet, Canadian companies would have free access to U.S. markets. Once they fall below that, the border would start to close. Canadian companies would have a choice under the deal. Companies in a region can agree to accept a quota on exports and pay smaller export charges. Or they can agree to pay higher export charges and ship without a quota.
The export charges would be collected by Ottawa and probably shared with the provincial governments.

The idea from the U.S. perspective is simple. Canadian companies will have to build the cost of the export duties into the price of the wood they send across the border. That will let U.S. producers keep their prices higher. The U.S. National Association of Homebuilders is forecasting that lumber prices could be about $315 by the time the deal is in effect. That would mean export duties of 15 per cent – more than the companies are paying now.

That’s not even the worst part of the proposed agreement. The whole point of this exercise was certainty. B.C.’s forest industry depends on the U.S. market. Companies’ willingness to invest here is reduced when they must factor in the chance that the door to the major market could be closed with little warning.

Instead of certainty, the deal offers a stopgap. It’s officially for seven years, but either side can opt and out and kill the deal in as little as three years. The industry – and governments – have no certainty.
No worries, says Emerson. It’s a U.S.-Canada deal and neither government is likely to pull out.
He can’t be serious. If the clause wasn’t likely to be used, the U.S. side wouldn’t be insisting that it be included. The American timber companies are a powerful political lobby. The agreement will be threatened the first moment they have the chance.

And why not? Their tactics over the last four years have worked extremely well, keeping Canadian lumber out, prices high and producing a $500-million windfall.

… The bad deal is especially surprising because Canada seemed to be making steady progress in its legal efforts to fight the duties under NAFTA and through the World Trade Organization. The dispute was always most likely to be settled through negotiation, but legal victories increase Canada’s bargaining position steadily had forced the U.S. to lower duties.