As President Bush and Canadian Prime Minister Stephen Harper meet at the NAFTA summit that starts Thursday in Cancún, Mexico, there are signs that the two leaders may be ready to compromise in a contentious 20-year lumber dispute.
"Both sides will need to see some sign from the other that the work won't be in vain. Softwood lumber has become an irritant that is really contaminating the relationship and it's time, if the conditions are right, to talk about a solution," said Canadian Trade Minister David Emerson after preliminary trade meetings last Friday.
At heart of the disagreement between America and its No. 1 trading partner is $5.2 billion Canadian ($4.4 billion ) in US duties that Canada says should never have been levied. It demands they be refunded.
The US government contends that the taxes compensate for what amounts to government subsidies. Since provincial governments own most Canadian forests, it says, the lumber can be sold at a price that undercuts American lumber producers, whose product comes mainly from privately owned forests. Canada, supported by a NAFTA ruling, contends that its industry is not subsidized and thus the countervailing duties should be lifted.
The lumber trade is critical to both countries. Approximately $10 billion Canadian ($8.5 billion) worth of Canadian softwood lumber, close to 70 percent of Canada's lumber production, is sold to the US annually. Those imports supplement US domestic industry, which can supply only 50 to 60 percent of its own needs.
Barry Cullen, executive director of the US Coalition for Fair Lumber Imports, says his organization would like to see a long-term lumber agreement between Canada and the US. "In the past, Canada's provincial governments couldn't come to an agreement amongst themselves on this issue, but we stand in unity on ours. In the past couple of years, we've put forward several positions and gotten no response from Canada."
But the steady warming of relations between the two neighbors since Canadian Prime Minister Stephen Harper was elected in January may facilitate resolution of the lumber dispute.
In his first interview with Canadian reporters since he took office five years ago, President Bush said this week that he'd like to resolve the softwood lumber issue and wants his government to work hard to bring it to a conclusion.
On March 17, a NAFTA panel ruling dropped the countervailing duties to less than one per cent from 8.7 percent.
"This is a huge victory for Canada," John Allan, president of the British Columbia Lumber Trade Association, told reporters in a conference call after the announcement. "I would also note the panel was unanimous in its decision - three Americans, two Canadians." The US has until April 27 to appeal the decision.
Last November, the panel called for the US Commerce Dept. to drop all countervailing duties - then at 16 percent. But a last-minute US appeal resulted in an 8.7 percent duty.
Daniel Ikenson, a trade-policy analyst with the Cato Institute's Center for Trade Policy Studies in Washington, says one reason the lumber dispute has dragged on is the Byrd Amendment, which ensured that duties imposed on Canadian lumber were given to petitioning US lumber producers instead of to the US Treasury. The trade amendment was repealed last December after the World Trade Organization declared it illegal, but the repeal won't take effect until Oct. 1, 2007.