B.C. Premier says a softwood-lumber deal is possible before NAFTA talks begin

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British Columbia Premier John Horgan is optimistic Canada can cut a deal to end the latest softwood-lumber battle with the United States ahead of the contentious renegotiation of the North American free-trade agreement that starts next month.

Mr. Horgan, in one of his first moves since taking office last week, spent two days in the U.S. capital meeting with Commerce Secretary Wilbur Ross, the Trump administration's point man on the softwood file, U.S. Trade Representative Robert Lighthizer and members of Congress.

"I'm confident there's a deal to be had," Mr. Horgan told The Globe and Mail Thursday. Mr. Ross, he said, was certainly thinking of the looming NAFTA talks. "I got the sense that timeline … was also on his radar."

Softwood lumber, a fractious issue for decades with the United States, is crucial to B.C.'s economy because it is the province's largest export to that country.

Explainer: NAFTA, dairy and softwood: What's going on with Trump? A guide to the trade file

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Mr. Horgan said Mr. Ross and Foreign Affairs Minister Chrystia Freeland are in talks over a market-share deal.

The deal would cap the amount of Canadian softwood that could be sold into the United States in exchange for Washington lifting the punitive duties it imposed in April. One source with knowledge of the talks said the two sides were close to a 10-year pact last month that would have set a quota on softwood – starting at a little more than 30 per cent of the U.S. market and declining over five years to slightly less than 30 per cent – and included a provision for Canada to exceed the quota in cases where U.S. production could not meet demand. The U.S. lumber industry, however, refused to agree to the deal, the source said. Chapter 19 of NAFTA, which provides for binational dispute-resolution panels that have ruled in Canada's favour on the softwood dispute in the past, is expected to be a key point of contention in the trade talks. The United States plans to demand that the panels be scrapped, while Canada is expected to walk away from negotiations if it cannot keep a dispute-resolution mechanism in place. Getting softwood off the table before talks would reduce the friction over Chapter 19.

The Trump administration took a different controversial trade policy off the table Thursday, announcing it would drop a proposed border-adjustment tax on imports. The decision represents a partial climbdown from the protectionist economic agenda on which President Donald Trump was elected last year. It came after furious lobbying from Canada, as well as American businesses that rely heavily on imports, including Wal-Mart.

The move was announced in a joint statement on tax reform from administration officials and Republican leadership in Congress.

"While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform," said the statement, signed by Treasury Secretary Steve Mnuchin, National Economic Council director Gary Cohn, House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Senate finance committee chairman Orrin Hatch and House ways and means committee chairman Kevin Brady.

Mr. Ryan favoured a border tax to recoup the revenue that will be lost if the Republicans move forward with a plan to cut corporate taxes. Some members of the Trump administration, including National Trade Council head Peter Navarro, embraced the measure as a way to push U.S. firms to buy American-made goods. One source said Mr. Ross also expressed support for the border tax behind the scenes, though he was cautious in his public statements. Mr. Trump has threatened in the past on Twitter to impose a "big border tax" on firms that moved manufacturing jobs out of the country.

Canadian officials, including Ms. Freeland and Finance Minister Bill Morneau, lobbied the administration and Congress on the subject. The message, said one source familiar with the discussions, was that such a tax would inflate the price of goods for U.S. consumers and disrupt business in key congressional districts. Canada had potent allies in the U.S. industry, particularly the retail sector. Even a conservative group backed by the billionaire Koch Brothers ran anti-border-tax television ads.

"Canada is pleased to see the border tax proposal dropped by the US. We know our people and economies prosper together," Ms. Freeland tweeted Thursday.

Clearing the decks ahead of NAFTA talks is a key objective for the Trudeau government. But despite Mr. Horgan's upbeat tone on softwood, other sources were more pessimistic about the prospects for a deal. One U.S. source familiar with the talks said it was not clear Canada would agree to a quota-only deal, because B.C. lumber companies favour paying an export tax instead of adhering to a quota. A source on the Canadian side cautioned that negotiators have frequently appeared to be close to deals that have not come to fruition.

Western Forest Products, meanwhile, announced Thursday it will indefinitely idle its Somass Sawmill in Port Alberni, B.C. In a news release, the company said the "uncertainty" caused by the U.S. duties on softwood was part of the reason for the shutdown.

Mr. Horgan's meetings also included sit-downs with Washington State members of Congress Dave Reichert and Suzan DelBene, who are on the ways and means committee that oversees trade; the National Association of Home Builders, whose members are major purchasers of lumber; and David MacNaughton, Canada's ambassador to the United States.