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Timber accord rankles Canadian firms

Many charge that agreement to pay taxes on a sliding scale on exports to US violates free trade.

By Josie NewmanCorrespondent of The Christian Science Monitor / October 18, 2006



TORONTO

A softwood-lumber agreement between Canada and the US, touted for months as a better deal than a former system based on duties, was finally implemented last week.

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The Canadian government, led by Prime Minister Stephen Harper, has pulled out all the stops in recent months to ensure a swift conclusion to an agreement that creates a sliding scale of import duties on Canadian softwood lumber.

The hope is to salvage the $11-billion-per- year Canadian softwood industry and to remove a flash point between the two close partners, who had sparred over countervailing and antidumping duties of 10.8 percent imposed on what the US charged were essentially subsidized Canadian imports.

But a weak US housing market and consequent low selling prices for US lumber means the agreement is already failing to meet the financial needs of Canadian producers, who export nearly 70 percent of their annual softwood production to the US, making it one of the country's largest export products.

"I don't think any Canadian producers are jumping up and down saying this is a good agreement," said Neil Shelly, executive director of the Alberta Forest Products Association, which represents 10 percent of Canada's softwood lumber producers. "We picked the best of two bad situations. If it hadn't been resolved, litigation could have dragged on for another four or five years, and the Canadian government has already spent more than $100 million in legal fees."

The US has long argued that Canadian producers benefited from invisible subsidies, given that most of their product comes from provincially owned forests. Canadians have countered that that does not give them a competitive advantage.

Under the agreement, Canadian lumber firms will pay Canadian-imposed taxes ranging from zero when American lumber is priced above $365 per 1,000 board feet to 15 percent when US lumber costs less than $315 per 1,000 board feet.

Eleven Canadian mills that employed 30,000 people have closed since the beginning of the month, a development that critics say is fallout from the agreement. Import taxes soared to 15 percent last week as American lumber prices sank below $315 per 1,000 board feet.

Still, many on the US side of the argument are not satisfied. The Lumber Manufacturers for Ethics and Equality, a group of smaller-scale American producers, says the agreement doesn't consider their interests and may force smaller American mills out of business.

"The $500 million in duties that will be refunded to producers as part of the new SLA [Softwood Lumber Agreement] will only go to those who belong to the Coalition for Fair Lumber Imports, making them wealthier and able to outbid smaller producers for lumber," says David Slaughter, the group's spokesperson.

The organization charges that the US trade representative's office failed to follow US law when it didn't consult with producers who aren't part of the coalition about the new agreement.

When the agreement was first written back in June, the price of US lumber hovered around $355 per 1,000 board feet. The SLA's sliding tax on Canadian imports ensures the American market can compete domestically by building deterrents against a flood of cheaper Canadian lumber.

The US domestic industry can only supply 60 percent of its own needs and is dependent on Canadian imports, a situation that may change if it negotiates a lumber trade agreement with Russia.

Carl Grenier, head of the Free Trade Lumber Council, claims the Canadian government talked tough with domestic producers to accept the deal, even though its main premise of sliding taxes and import quotas based on the price of US lumber isn't consistent with free-trade principles.

"The agreement will not help exports because we're going from 10.8 percent to 15 percent every time we export," he says. "More mills will close."

The agreement, which was scheduled for implementation Oct. 1, was delayed when several Canadian lumber producers refused to drop 30 lawsuits against the US government. The US, they argued, continued to impose duties after a NAFTA panel and the US International Court of Trade found the duties violated free-trade principles.

One of the conditions for the SLA to take effect was that all litigation from Canadian producers be dropped. The stalemate broke when the United States trade representative offered to drop all countervailing and antidumping duties, which were to be dismissed as soon as the SLA took effect anyway.

The move rendered most of the Canadian lawsuits invalid and, according to industry sources, the remaining lawsuits were dropped after Canadian government officials twisted producers' arms.

As part of the SLA, Canadian producers will receive a $4.3 billion refund from the US Treasury for revoked duties.

The remaining $1 billion in revoked duties will be divided among the US Coalition for Fair Lumber imports, a binational industry council, and three nonprofit agencies associated with the lumber and building industries. The agreement will remain in place for seven years, with the potential for a further two-year extension.

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