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Trudeau will regret not nailing down softwood deal before Trump era

The Justin Trudeau-Barack Obama mutual admiration society is winding down with no end to the Canada-U.S. softwood lumber dispute in sight, proof that even the best of buds can sometimes only agree to disagree.

Canada's rookie Prime Minister and the more seasoned U.S. President promised, at their first meeting last March, to move mountains to reach an agreement in principle for replacing the expired bilateral softwood lumber agreement within 100 days.

All the two leaders could come up with by June's deadline, however, was a joint statement vowing to continue talking in order to reach a deal "designed to maintain Canadian [softwood] exports at or below an agreed U.S. market share."

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As the weeks turned into months, it became increasingly clear there would be no deal before the October expiry of a one-year standstill agreement preventing the U.S. industry from seeking antidumping duties on Canadian lumber. The outcome of this month's U.S. presidential election has now left the Canadian industry facing much grimmer prospects and years of trade litigation.

Did Mr. Trudeau squander an opportunity to do a deal while he had a friendlier interlocutor in the White House?

"Obviously, I'm going to miss having Barack around to work the Canadian relationship with," Mr. Trudeau offered when the two leaders met last weekend at an Asia-Pacific summit in Peru.

Commenting on the failure to reach a softwood agreement before Mr. Obama leaves office, the Prime Minister added: "The American lumber industry has a large say in how this is going to unfold. Indeed, they have a veto over what the [U.S.] administration might propose."

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This represents a dramatic shift in tone on Mr. Trudeau's part. Was he overly optimistic in March, or just unforthcoming?

"The reality is the U.S. industry is not where we need them to be," offered Alex Lawrence, a spokesman for International Trade Minister Chrystia Freeland. "The protectionist climate in the United States does complicate any trade negotiation, including this one."

Regardless, the switch has now been flicked for a repeat of the cycle that has consistently left Canadian lumber producers holding the short end of the stick.

Ms. Freeland's office says that on Friday the U.S. lumber industry will claim injury by "unfairly subsidized" Canadian imports; the U.S. Commerce Department will slap interim duties of as much as 25 per cent on Canadian lumber; trade lawyers in both countries will pocket millions in fees representing both sides before bilateral and world trade panels; the latter will decide, years from now, in Canada's favour.

In the end, the U.S. and Canada will agree to an even worse deal than the 2006 softwood agreement, under which Western Canadian lumber producers faced an export tax of up to 15 per cent, depending on market prices, while Central Canadian producers opted for quotas and a smaller export tax. Under the 2006 deal, no quotas or taxes applied when lumber prices exceeded $355 (U.S.) per thousand board feet.

Forest economists Rajan Parajuli and Daowei Zhang recently examined the impact of the 2006 deal and concluded that the biggest losers were U.S. consumers, to the tune of about $6-billion in 2015 dollars. U.S. producers, on the other hand, gained $4.25-billion from the deal. Canadian producers, meanwhile, lost about $2.4-billion (Canadian).

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While that hardly sounds like a fair shake for Canadian producers – especially since Quebec, Ontario and British Columbia now use market-based competitive auctions to set stumpage fees – an extension of the 2006 deal might be the best Canada could hope for. A more protectionist U.S. administration is about to take office with softwood clearly in its sights, while two dozen U.S. senators representing Southern, Midwest and Pacific Northwest states are pushing for hard quotas on all Canadian lumber that would reduce Canada's share of the U.S. market even further.

On top of that, the U.S. lumber lobby is opposed to renewing the terms of the 2006 agreement, as Prof. Parajuli and Prof. Zhang note, because "doing so will impact its ability to do fund-raising, some lumber producers fear that lumber prices will rise to and stay above $355 per mbf when the housing market recovers in the U.S., and [because the lumber lobby has] garnered support from some U.S. forest landowners who simply want higher [Canadian] stumpage prices irrespective of the merit in the lumber case."

There is no disputing which Canadian producers will suffer most from the absence of a softwood deal. While B.C. supplies more lumber to the U.S. than any other province, the opening up of new markets in Asia means B.C. producers now rely on the U.S. market for only 50 per cent of their exports. B.C. producers have also invested in U.S. lumber mills to hedge their bets.

Quebec producers, which account for a quarter of Canada's lumber exports, are both more financially fragile and dependent on the U.S. market than their B.C. counterparts as more than 90 per cent of Quebec's lumber exports head south.

Mr. Trudeau is not the only one who risks missing Mr. Obama.

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About the Author

Columnist Konrad Yakabuski writes on politics, policy and business for The Globe and Mail’s Comment section and Report on Business. More


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