Trudeau in Washington: Softwood lumber at loggerheads again
'If there's a deal, it will be a more restrictive deal than the last one and it won't be good news for Canada'
Amid the glitz of Prime Minister Justin Trudeau's state dinner at the White House this week, perhaps it's unfashionable to remember these two great neighbours also have one of the largest and longest-running trade disputes in the world.
A tiff over two-by-fours is less sexy than wondering whose spouse is wearing what. But the billion-dollar bust-up over softwood lumber has seen Canadians and Americans at odds for 30 years.
Trudeau and his trade minister, Chrystia Freeland, are working hard to show, in the trade minister's hopeful words, "significant progress" on the issue. But loggerheads loom.
The uneasy peace controversially brokered by Stephen Harper's 2006 softwood lumber agreement didn't last. It was renewed several times on Conservative watch, but this option now eludes the Liberals.
Softwood lumber was, as Freeland told reporters, one of the first priorities Trudeau raised with U.S. President Barack Obama at APEC last November.
But two things seem clear as Trudeau and his delegation get ready to head to Washington: renewing the now-expired deal is not possible, and not everyone sees negotiating a new one as urgent.
"Canada … is going to Washington asking them to basically hit us on the head again," said former lumber council executive and trade diplomat Carl Grenier. "It's really quite amazing."
'Unfair' Canadian industry
Since the 2006 deal expired last October, free trade has been back: no tariffs, no thresholds and no restrictions on trade of the widely-used forest products between the two countries.
For one year — now half over — the U.S. can't launch any actions against Canada.
That doesn't mean it doesn't want to.
The U.S. Lumber Coalition rants online about the dangers of Canadian practices "left unchecked" causing unemployment or even the takeover of U.S. assets.
Things have evolved, the softwood lumber lobby group argues. Renewing the old deal isn't good enough.
"Border measures against subsidized and unfairly traded Canadian lumber imports are essential — otherwise differences between the U.S. (mostly private) and Canadian (mostly public) timber sales systems give Canadian producers an unfair cost advantage," the coalition says on its website.
The coalition declined to speak to CBC News, but sent a statement more measured than its online lobbying: it supports negotiations and hopes Canada will be a "willing partner," leading to "an effective, mutually beneficial and sustainable" deal before October.
What's changed in the decade since the deal was first signed? Plenty:
- Promising U.S. housing starts are boosting demand for the two-by-fours this fight centres on.
- Canada's lower dollar makes imports into the U.S. more competitive.
- The Canadian supply of lumber took a hit from the pine beetle in B.C. and the spruce bud worm farther east. Between the 2006 deal's import restrictions and Mother Nature, Canada's share of the U.S. market now sits at about 27 per cent, not the 40 per cent it once had.
- B.C. and Quebec implemented an auction system to set timber prices on Crown lands — a shift to market pricing that makes the "subsidized" label harder to stick.
- Four major B.C. companies expanded into the U.S., buying mills to insulate them from future trade actions.
No incentive for quick deal
"The only sure way to avoid litigation is to negotiate a new deal, to be very blunt with you," lead Canadian trade negotiator Kirsten Hillman told the Commons trade committee last month.
But in a recent study for the Canada West Foundation, analyst Naomi Christensen questions the inevitability of an agreement.
"With the U.S. being deep into their election cycle, I don't really see the U.S. as having an incentive to sign one, especially with the lumber lobby in the U.S. being opposed to one [renewing the status quo.]"
She advises the Canadian industry to diversify its value-added products and international markets in the meantime.
Americans are more focused on Obama's Trans-Pacific Partnership — a legacy-making Pacific Rim trade deal that allows more competition from Chile and New Zealand in lumber.
Christensen says the best outcome would be an extension to the litigation standstill beyond October.
"That would be a big win for Canada," she said.
The U.S. lobby pushes for punishing import tariffs on Canadian softwood lumber, even if international tribunals keep overruling them. The legal fights strain government resources.
"Their goal is to hurt our sector and that's what brings us back to the negotiating table."
Former Liberal cabinet minister John Manley says the ongoing dispute is "the gift that just keeps on giving to big Washington law firms."
"If you're sending your kid to law school in the United States, tell him or her to take trade law and specialize in lumber."
'Reaction of fear'
For Grenier, a former federal and Quebec trade bureaucrat who worked for industry in the run-up to 2006, rushing to negotiate is foolish.
"Nobody really knows what will happen next October," when the U.S. is allowed to start trade action again, he said. New tariffs, if they were to come, could take as long as two years to implement.
Meanwhile, he said it's "shocking" to initiate talks when Canada's doing nothing wrong.
"This notion of wanting to prevent something that the U.S. could do is basically a reaction of fear. That's a bad way of behaving when you're dealing with a superpower. And also your neighbour, which is supposed to be also your main ally."
The 2006 deal hurt Ontario and Quebec the most, he said. Three-quarters of exports now come from B.C.
While all provinces supported the most recent extension of the deal in 2013, not every industry player did.
Open it all up again and a united front gets tricky.
National governments negotiate, but the real protagonists are not in the room. Things drag out.
U.S. producers said no to extending the previous terms. They won't agree to less now.
"If there's a deal, it will be a more restrictive deal than the last one and it won't be good news for Canada," Grenier said.
How could Canada call that a win? "It couldn't," he said.
Back in 2002, CBC host Shelagh Rogers asked former trade minister Pierre Pettigrew to pick a song to follow their radio interview about an earlier battle in this dispute. Did he pick the triumphant opera aria she suggested? Er, no.
He picked Man of Constant Sorrow, from the O Brother, Where Art Thou? soundtrack.
Trudeau now represents Pettigrew's Montreal riding. His too, this constant in Canada–U.S. relations.
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With files from Meagan Fitzpatrick