The softwood dispute, which began during the 1982 recession as U.S. lumber companies were battered by plummeting prices, centers on the "stumpage fees" — what Canadian provinces charge for harvesting the government-owned forests. American lumber producers banded together to form the Coalition For Fair Lumber Exports more than two decades ago and launched a series of legal claims arguing the stumpage fees were artificially low compared to higher prices on privately owned timber stands in the U.S. The U.S. Department of Commerce sided with the producers and began imposing duties that had accumulated to $5.3 billion by the time U.S. Trade Representative Susan Schwab and Canadian Trade Minister David Emerson signed a new agreement on July 1, Canada's national founding holiday.
Although Canada had already won a series of appeals under Free Trade Agreement dispute panels and a final victory at the World Trade Organization last spring where the countervailing duties were ruled unjustifiable, the U.S. administration refused to budge. So Canada's Prime Minister Stephen Harper agreed to an accord that returns only $4.3 billion of the $5.3 billion that Washington imposed on Canadian exports. Of the remaining $1 billion, $500 million will go to the U.S. producers who originally challenged the Canadian prices, which is salt in the wounds of Canadians who say the money will help pay legal bills the Americans accumulated. The remainder is earmarked for undisclosed "meritorious" projects in the U.S. — possibly including reconstruction in New Orleans — and a fund for developing the industry on both sides of the border.
In return, the Canadian government agreed to impose export taxes that will rise if the price of lumber drops. Either side has the option of terminating the agreement after 18 months, with a six-month notice of termination.
While the deal may have ended the dispute for U.S. lumber producers, it still remains a hot issue for the Canadian government and could force a snap election this fall. Either way it's likely to help define one of the central issues in the next campaign, whenever that might take place. Although the lumber industry is signing on to the softwood accord, the impression among Canadians — and even in some American quarters — is that Harper's Conservative government caved in to the White House. Observers say it is inevitable that Harper's defense of Canadian interests and his chummy relationship with Bush will be central issues for voters.
"Canada has been successful in its litigation and frankly, that's why we're surprised they decided to go forward with this deal that so overwhelmingly favors the U.S.," says Susan Petniumas of the fledgling American Consumers for Affordable Homes, an alliance of 17 groups and companies, including Home Depot and the National Association of Home Builders.
Canada's ambassador to Washington, Michael Wilson, a former Conservative finance minister who helped steer through the Canada-U.S. Free Trade Agreement in 1988, echoed the position of lumber executives who have publicly endorsed the agreement. "The alternative... is continued costly litigation, with no guarantee of a more favorable result, continued U.S. duties punishing Canadian industry workers and communities, and an unstable business environment for this important sector of our economy," he told Canada's House of Commons International Trade committee this week.
The head of Canfor Corp., Canada's largest softwood lumber company, told the same panel that the long battle and duties have drained financial resources at a time the industry is attempting to develop new technology and remain globally competitive. Canfor president Jim Shepherd told the Members of Parliament the favorable ruling at the U.S. Court of International Trade earlier this year came at price that was too high. "We do not need another such victory that costs us so much." In the U.S., the Coalition for Fair Lumber exports said this week it would withhold comment on the agreement for now, cautious perhaps about inflaming Canadian opinion.
Harper, buoyed by support from some of the country's largest lumber companies and the governments of British Columbia, Ontario and Quebec, the major regions affected by the deal, announced this week that his government would press ahead after getting majority support from the Canadian industry. He declared that the agreement will be put to a confidence vote when Parliament resumes next month, virtually taunting the opposition parties to vote against it. A loss on a confidence vote would trigger an election, the third federal election in Canada in just over two years. While one opposition member called the deal a "sellout," others are wary of election fatigue. "We're not really interested in playing that sort of game of electoral chicken with Mr. Harper," says New Brunswick MP Dominic LeBlanc of the opposition Liberals. "What we're saying is that our position with respect to an ultimate vote on this agreement is not going to be unduly influenced by Mr. Harper bullying us." He adds that an election is "always a possibility in a minority government, and particularly if you have a prime minister like Mr. Harper who wants to play brinksmanship on every issue. At one point, the egg will roll off the table."