U.S. and Canadian lumber executives pulled out of Washington yesterday after reaching a deadlock in talks on a border tax that Canada must impose on itself to get quick relief from U.S. import duties.
There was disagreement about who walked out first, but people in the Canadian camp said the Americans sought an effective tax rate of about 25 per cent, potentially leaving Canadian firms worse off than with existing duties of 27.2 per cent. Companies can still hope to recover some or all of the duties through appeals to international trade bodies or a negotiated settlement, but the proposed tax would flow to provincial treasuries.
"What's the point in entering into a deal which has us paying basically what we're paying now -- with no hope of getting the money back ever because it's transformed into an export tax -- as compared to the very real possibility of getting it back if you win the legal cases, as we have done in the past?" said Carl Grenier, a former Quebec official representing a Canadian industry group, the Free Trade Lumber Council.
"It was the U.S. that left and we had nobody to talk to," said Edmonton lumberman Trevor Wakelin, speaking for the Alberta Forest Products Association. But he stressed that the bargaining is not over. "I don't think anybody expected an overnight success."
B.C. Forest Minister Mike de Jong said talks "adjourned" and could resume as early as next week if there are "signals sent that discussions around a proposed interim deal will be more fruitful than they have [been]during the past couple of days."
The U.S. position was that the talks halted by common consent, but will probably resume after a lull. "There clearly was not enough on the table to make things very interesting," said John Ragosta, the Canadian industry's nemesis for 18 years as lawyer to the Coalition for Fair Lumber Imports, a Washington lobby group.
In Ottawa, Trade Minister Pierre Pettigrew said he was "very disappointed" about the break in the talks because it came after "great progress" between the two countries on proposals to reshape Canadian provincial forestry regimes.
"We are realizing the gap is too large on an export tax and we cannot agree on what to do on the $1-billion [in duties]that has already been collected," he said, blaming hard-line elements of the U.S. softwood industry, notably Mr. Ragosta's coalition.
Canadian Alliance trade critic John Duncan blasted Mr. Pettigrew's failure to advance softwood talks, saying the dispute is hardly any further ahead than in March, 2002, when high-level talks last fell apart.
"We haven't moved very far . . . this is a time for strong leadership from our trade minister and we're not actually seeing that."
Toronto trade lawyer Larry Herman said Canada will not achieve free trade in softwood lumber even if a deal with the United States is finally reached.
"The fact is, this is going to be a highly managed trading relationship with an enormous amount of U.S. oversight because that's what the deal is: 'You move to a market-based system in your provinces and we'll determine whether you have done it or not.' " If an agreement were reached, the tax would be collected while provincial governments tried to satisfy U.S. demands for "market-based" timber sales mechanisms, opening the way for the U.S. Commerce Department to reverse findings that Canadian lumber is unfairly subsidized.
Under most plans discussed during the talks, the tax would operate on a sliding scale designed to support U.S. lumber prices: the lower the price, the higher the tax rate. There was no agreement on how hard such a tax would bite because the two sides made different price assumptions. The U.S. view was that prices would rise and the tax rate would be less than the 25 per cent feared by the Canadians.
Aside from the tax, three major issues remain unsettled:
Will Canada abandon appeals under World Trade Organization and North American free-trade agreement rules in order to reach a negotiated settlement?
Will the duties collected so far be refunded as part of such a settlement?
What will happen to Quebec, the lone holdout against U.S. demands for forest administration changes?
Marc Boutin, international trade director of the Quebec Forest Industry Council, said the fact that talks have halted over the border tax issue means that provincial forestry officials can take more time to work on some "very minor" issues he said still must be resolved.
Major B.C. producers fear a chance to settle the dispute may be lost if Washington and Ottawa become preoccupied with a war in Iraq. "We worry about that," said John Allan, president of the B.C. Lumber Trade Council.
Industry representatives are "ready, willing and able" to return to the bargaining table, he said. "I would encourage negotiators to keep going so that we can get a resolution to this over the next week or two."
Steven Chase