Monday, December 20, 2004

Softwood ruling hammers B.C. - where's Ottawa?

VICTORIA - Things are looking grim on the softwood front, and it's time for Canada to take the big risk of getting tough with the U.S.
The latest ruling confirms - again - that the Americans aren't going to settle this dispute based on NAFTA or WTO rulings. It's purely political. The American lumber producers have the political clout to influence the U.S. government, and the money to keep coming up with clever strategies to maintain the duties.
This week's ruling by the U.S. Commerce Department found a way to keep duties at 21 per cent. The ruling was "perverted," Forest Minister Mike de Jong said, twisting the facts and using discredited methods to keep the duty 60 per cent higher than even the U.S. had said was warranted only a few months ago.
But it gets much worse than the first media reports - including mine - revealed.
For the first time, the U.S. has targeted B.C. Producers here have now been singled out as the big offenders, and alleged to have earned duties more than twice as high as the average for other provinces.
The change is significant, and bad. The five other provinces covered by the trade penalties were judged to have earned an average 13-per-cent duty, the level expected based on earlier decisions.
But B.C. producers were assesed with a 27-per-cent duty, twice as much the average for the other provinces. B.C. is accused of providing the largest subsidies to its forest companies by undercharging for trees on Crown land, and thus faces the harshest penalties. The U.S. Commerce Department compared log prices on both sides of the border - a comparison already rejected in an earlier World Trade Organization ruling - to reach the conclusion that companies operating in B.C. get a break.
So far, the duties to be paid by B.C. companies will be based on the national average. But producers in other provinces can now be expected to press for a deal that advances their individual interests.
The legal details don't really matter in this battle. The dispute is about profit and politics, not trade agreements and the law.
Canadian and U.S. industry representatives were supposed to meet in Chicago last week to see if they could negotiate a deal. Canada pulled out after the ruling came down.
That's reasonable. There's no prospect of a fair negotiated settlement right now.
What's less reasonable is the belief that a big NAFTA win, expected as early as March, will bring the dispute to an conclusion. That ruling is supposed to mark the end of the appeal process for the U.S., which has lost a string of earlier decisions.
But it won't. The NAFTA panel has just been appointed, and the American lumber industry has already launched a clever attack. It has hired former U.S. attorney general Richard Thornburgh to argue that the whole NAFTA dispute resolution process Canada is counting on violates the U.S. constitution. (The panel includes representatives of both countries, and Thornburgh argues that the constitution bars foreigners from any body that imposes binding decisions on the U.S.)
Thornburgh has written every senator and congressman, and can be expected to have the ear of President George Bush; he was attorney general in the administration of Bush senior.
It doesn't matter if the legal argument is strong or weak. It plays nicely to American preoccupations - remember how much mileage Bush got out of claiming John Kerry would subject military action to a foreign veto - and sets the stage for long legal wrangling that would stall any settlement.par That leaves Canada with few choices.
The government can fight, and threaten trade retaliation, or a refusal to co-operate on missile defence or other U.S. priorities. It's risky - the trade relationship is much more important to Canada than it is to the U.S.
But it's also the only option left to defend the industry in B.C., and the families and communities that depend on it.
Footnote: Paul Martin pledged that a Liberal government would pay attention to B.C.'s concerns and problems. But he failed to push the softwood issue successfully during Bush's brief Canadian visit and his government has been silent on this week's attack on B.C. Ottawa needs to offer either a counter-attack, or an aid plan.


Gazetteer said...

Aaaahh, now I get it. The 'F' in NAFTA actually stands for.....

Not sure Pat Carney saw that switcheroo in the fine print before she signed on the dotted line.

Anonymous said...

Interesting article but there is another approach - and there has been for at least 10 years now.

BC should quite subsidizing public timber resources and sell it using an open market auction system.

As a BC citizen - and (1/4,000,000 th) part-owner of the resource - I would like to be assured my trees are being sold at fair market value.

If this was done, the US arguments go away, BC gets increased timber revenue, the mills go back to work and the economy gets back into a natural free market balance.

Unfortunately, to understand why this is not being done, one needs to understand the mind set of BC government bureaucrats and/or politicians - they think like heroin junkies. They need their regular timber cash fix - and they need it now!

Compare the approaches;

In the US (or in other parts of Canada and even private wood lots in BC) when timber prices go down, the private wood lots slow down on cutting because the market prices will not cover the costs of cutting the trees (a natural economic law of supply and demand).

On the other hand, in heavily subsidized BC, when timber prices go down - and the government is desperate for its cash fix - it insists - nay demands - that the mills cut even more wood in order to get the cash fix it desperately wants. No self-restraint, no belt-tightening during tough times - its all short term cash grabs and to hell with the future.

The net result is dumping even more (subsidized) wood into a depressed glut market and throwing the entire free market checks and balances for a loop. This is fiscal insanity.

This is why the US lumber manufacturers complain and this is why the US Department of Commerce has done the analysis verifying and identifying the abuses. It is this insane forestry management practice that has ultimately led to the imposition of the tarrif.

It is pathetic that rather than show even a modicum of restrain, our politicians, bureaucrats and industry lacky's have always chosen to openly lie about the subsidies, ignore the fiscal abuses they commit with publicly owned timber and look to blame our own self-created problems on the "evil Americans".

Secondly, as brainwashed Canadians, we fail to understand that the US is not a dictatorship as Canada is - ergo we blame George Bush because he cannot simply demand that his entire government do his bidding. We have seen our Prime Minister do this sort of thing regularly but in the US, Bush simply doesn't have that level of dictatorial power. He must abide by and respect the independent findings of the Department of Commerce.

The review panels at the US Department of Commerce are no political puppets, they have reviewed the evidence put forward by both sides in this case and, based on evidence provided to the Department by all parties, has found Canada (with BC the worst offender) to be in violating of anti-dumping laws. This is why the tarrif was imposed. The findings and judgements are all available on-line and can be easily read by anyone with an interest. They are well researched, well reasoned and fair.

Remember FRBC? This nightmare waste of money was financed to the tune of over $2.5 billion in tariffs we charged ourselves. We agreed to this in order to keep the playing field level and keep trade fair between the US and Canada. It worked well for 5 years. We wasted the monies ultimately, but at least we had it to spend!

But, rather than negotiate a renewed agreement that would have kept all that money in BC taxpayers pockets, the geniuses that have now somehow become our spokespeople have squandered that opportunity in favour of a new strategy of denial, confrontation and laziness and have therefore had a solution imposed upon them by an external agency. This is simply colossal incompetence at the highest level and we brought it on ourselves.

In the end - it is my belief that the only way out of this nightmare - as it is with all junkies - is to end the denial, quite blaming other people for our own troubles and start to focus on fixing the underlying problem. Honestly, I think the US is right and as British Columbians we are being hoodwinked by those who simply want to blame the Americans rather than deal with fixing our own internal "Soviet style" foresty system.

It is in their best-interests to save this old and corrupted system, not ours, so I say lets get on with the job of scrapping it and let BC mills compete in the open market.