Monday, July 03, 2006

Bad softwood deal grim news for B.C.

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 deal is already under attack. The B.C. government and the province’s industry have sent a joint letter saying the agreement is unacceptable. They want, among other things, a slightly longer term. Companies can kill the agreement by refusing to drop their lawsuits over the current duties.
But Emerson signed an agreement on behalf of Canada. The industry has to worry about his future attitude. And in any case, the U.S. negotiators can now just keep insisting Canada honour the commitment already made.
Ottawa has fumbled, badly.
Footnote: 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.


Anonymous said...

Yes Mr. Harper just loves to play footsies with Mr. Bush in 10 years he'll have us join the U.S. We didn't support him enough and Mr. Emerson needs a deal to keep the Toadie press on side. Our BC media has already forgiven him for crossing the floor. As Cameron Bell ans Harvey Oberfield said politicians are bot our friends and the public deserves answers but all we get from our talk show hosts and reporters are weak questions and if not answered another sweet question. Even if you agree with the politician it doesn't mean you let him off with cheesecake questions demand an answer.

Anonymous said...

PW wrote: "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. "

It doesn't take a genius to read between the lines...
Harper: Emerson, I brought you in to do a job - Make me look good to the Americans!

Emerson: Yes my liege, I am but your humble servant. You shall have a deal even if we have to give away the Kingdom to get it!

deaner said...

Sure - it's easy to suggest that this is just a way for Harper to make nice with George 43, but it is equally plausible that this is the best deal that he and Emerson thought they could get. I admit that I would be more willing to give the two of them the benefit of the doubt if there was evidence of hard bargaining on the Canadian side. Essentially, we have one big lever we can use: energy access. The US has several, not least the benefit of the integrated auto industry; while it would be an economically stupid move, it would probably be a politically popular move for the US to choke off auto and auto parts trade; and that would put a world of hurt on Canada - particularly the economy that underpins the Centre of the Universe. We will never know just how serious the negotiations got - but you rarely come out unscathed when you negotiate with someone who needs you much, much, less than you need him. Moreover, when the Federal government is negotiating and Ontario is at risk - well, don't expect much concern over the impact on BC.

Anonymous said...

I can tell you -- all us lumberjacks in the backwoods of Vancouver-Kingsway are just hopping up and down about this!

RossK said...


If that is truly the case, why is it that it is the Industry groups who are most upset about the latest iteration of the deal?

And why, when we are in the superior legal position, does it look like the so-called 'deal' keep getting worse with each iteration?

If I'm wrong about either point, please feel free to explain how I have misread things - thanks.


deaner said...


I'm not really sure just what you are asking. The industry thinks this is a bad deal. I think they are right, but that doesn't preclude Emerson thinking (rightly or wrongly) that it is still the best deal he can get. First, absent a deal, the coalition isn't going to go away - and US law means that the Administration cannot put them in a backseat; they will continue to bring vexatious lawsuits, and they will still be able to go to Congress, not to the Executive Branch, for interim remedies. The Administration doesn't have the political capital to change that - this basic to US law, right down to "separation of powers" stuff; I am not sure if it could be changed, no matter how popular the President was at the time. So, to make the coalition go away, somebody has to give them something. Second, the current Administration doesn't see a lot of benefit in keeping Canadian lumber producers happy (and perhaps, Canadians in general), so if anyone is going to take a haircut to keep the coalition quiet, it is going to be a Canadian. In fact, the aggregate loss to the US ecomomy of high building materials prices outweighs the "benefit" of jobs in small, inefficient southern lumber mills - so in moving to lower lumber prices there should be a gain in the US, part of which can be used to buy off the coalition. Unfortunately, politicians make lousy economists (or maybe, it's the other way 'round, pace Stephen Harper) so the Administration does not recognize this, and all of the "cost" of buying off the coalition will come from north of the border. Third, consider where the coalition is based - these are businesses and employees (and hence, voters) who form the major part of Bush's base of support, and who he sees as the future support for Jeb; he will not piss them off lightly, if at all.

So now we see what kind of a box Emerson and Harper are in (and Martin, and Chretien, and Mulroney...). Willcocks is only partially right when he says we were making progress under NAFTA and WTO - we were "two steps forward, one step back" on NAFTA rulings - they tended to agree with our position with some caveats and exceptions - and pretty-much 50/50 on WTO; there was never a clear-cut win/lose decision there. The best that can be said about continuing the litigation and trade dispute route is that it would be (very) time-consuming - literally years to come to a resolution, if ever - and expensive - not only in legal costs, but in the payment of interim duties and opportunity costs. There is every likelihood that the US would continue to litigate as long as possible: they get to sit on cash in the meantime - which is always nice when you are litigating; they don't accept that Canada is in "a superior legal position" - they take all the ambiguous rulings and mixed decisions and see them as wins for them (and we do the same) - I think they are wrong but that is their perception; the coalition has an absolute right to demand that sanctions be imposed pending a determination by the Department of Commerce - their strategy for the past dozen years has simply been to accept a negative determination (usually when forced on the Department by NAFTA) and refile on the same grounds, with just enough of a change to require a new determination - typically the cycle-time is about three-four years. Since they get the benefit in the meantime, they can be expected to continue that practice.

So now we see how long Harper / Emerson might have thought they would be in the box - possibly forever. I am dissappointed that they didn't try harder (at least, visibly; perhaps they did, but it didn't work - we will never know) to break out of the box - but that would require linkage of softwood to other trade or non-trade issues. Harper has been on record that he does not support trade linkage - and he is probably philosophically correct (see above on politicians and economists) - but that might have been the only way to break the logjam. Our only real opportunity for linkage is in access to energy - even aside from the unpopularity of such a move domestically, it would carry real external risks. Once you try to link trade issues you risk US linkage on other issues; like, say, the Canadian automobile and related industries. There are losts of states that voted for Kerry or narrowly for Bush where car manufacturing is a critical industry - think Ohio, for one. Union leaders and corporate managers looking for a handout are not great economists, either - and a wink and a nod from the Administration that Canadian auto parts makers were "unfairly subsidized" could bring the same sorts of protectionist nonsense to that sector. If so, that would shut down a big chunk of the Candian economy pretty quickly.

The lumber industry doesn't have to worry about the auto parts business in Ontario - but Harper and Emerson do. Similarly, the lumber industry may or may not be aware of the constraints the Candain government was working under, or the other pressures brought to bear by our American friends. It is not inconsistent for them to think the deal is a bad one, and for it still to be the best that Harper and Emerson thought was available.

Anonymous said...

better late than never so I comment to Deaner..WTF does the WTO have to do with NAFTA. WTO has no legal rights to deal with NAFTA so their rulings are meaningless.

Anonymous said...

better late than never so I comment to Deaner..WTF does the WTO have to do with NAFTA. WTO has no legal rights to deal with NAFTA so their rulings are meaningless.

Anonymous said...

I was listening to Mike Smythe and the federal NDP critc of the deal. Quie interesting as nobody had bothered to keep the stakeholders informed. Emerson cut a deal that every analist, so far thinks is a flop. Canfor sort of likes it, and of course Dumbo the Liberal forest minister kps defending it when Goro his boss got Dobell to sent a note saying BC is against it. So on one side you have Coleman and canfor, other side, pretty well everyone else. Wasn't it Coleman's brother who works for a island forest company? Wonder if it's Canfor

deaner said...

"WTO has no legal rights to deal with NAFTA so their rulings are meaningless."

Glad to get your informed opinion - now you just have to straighten out the Americans, who brought the case to WTO, and the Canadians, who agreed to argue it there. There were two processes going on -and they both had jurisdiction: the NAFTA claim sought to declare US actions illegal under US law, the WTO action sought to have them declared legal (or illegal) under WTO rules, which would then disallow (or allow) retaliatory duties.

Anonymous said...

The deal Harper has cobbled together in his rush to curry favour with Bush is an appalling one, for the reasons mentioned, and others.

When Harper takes this deal to Parliament, it deserves to be altered. The Bloc, NDP and Liberals have the majority of the seats in Parliament, and it is the duty of their MPs to act in the interests of Canada and their constituents.

If the Liberals allow this deal to go through (either by ineptitude – such as the last budget debacle, or disorganization – due to the leadership campaign absorbing so much of their efforts), then they deserve to be punished by the voters come the next election.

If course, if by their conduct Liberal MPs (especially the contenders for leadership of the party) show that their failure to stand up to Harper on yet another rushed exercise, springs from cowardice, then the voters should take note of this, and not grant them a government minority or majority until they acquire some intestinal fortitude.

This softwood deal is more of a test of the calibre of the Liberal leadership contenders, than of Harper. We have measured Harper, and he is wanting.

Now let us measure the Liberal Party, and see if they deserve the votes of Canadians.

Anonymous said...

The T/C headline tells us. "Harper says. Done deal". who got done? Well the BC forest guys for starters.

Some papers say it's still to be cleaned up. But that doesn't seem to be the PM's view. Writers here have the opinion the opposition parites will maybe vote no. The NDP crtic says they will. I wonder.

Back to Mike Smythe. His article in the Province this morning says it better than most of us.

Anonymous said...

Whether the opposition votes against or abstains should also be a knock against Harpor, who for political reasons charges almost every philsophical and economical question throws his gov't in jeopardy. He's again playing bully. Yes, it should be imperative that all opposition parties, and MPs who serve lumber-producing ridings especially, stand up and vote against this deal. The NDP and Liberals should prepare to approach the governor general on a deal to operate the gov't as a coalition, with 1/3 cabinet of ndpers. Martin (paulie, not tory wannabe Patty) or Graham could lead until the convention. The Grits have operated the federal coffers fairly well over 13 years, the odd misstep but balanced the books. Something that the new PM Steve is not shown to do just yet. I say call Harpor's bluff.

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