One Year Later, Americans Still Threatening Softwood Deal

(Vancouver Sun)

American lumber companies used the first anniversary of the controversial softwood lumber agreement to say the deal is at risk over what they claim is a $123-million under-payment of export taxes by Canada.

But the head of B.C.’s main forestry association urged the Americans to let the agreement work – including a binding arbitration process that is expected to resolve the U.S. complaints.

John Allan, president of the Council of Forest Industries, dismissed the threat from the Coalition for Fair Lumber Imports as simply an attempt to keep up political pressure within the U.S.

Allan said both the U.S. and Canadian governments have agreed to live by an arbitration over the under-payment issue. The London Court of International Arbitration is expected to deliver its decision next March.

The arbitration is over different interpretations of the wording in the agreement.
Even if the U.S. wins its case before the court – which Allan believes is unlikely – the most Canadian companies would owe is between $15 million and $50 million, he said.

The seven-year agreement limits Canadian lumber exports by imposing a tax in the West and a quota on shipments in the East. It went into effect on Oct. 12, 2006.

It revoked U.S. countervailing and anti-dumping duty orders and returned to Canadian exporters $4 billion U.S. in duties collected by the United States since 2002.

Despite what he termed “more of the same,” by the U.S. lumber lobby, Allen said the agreement has had its benefits for Canadian producers, primarily the return of duties. Its down-side is a sliding tax based on the price of lumber. The tax has been at the maximum duty level of 15 per cent for B.C. companies during the entire first year.

The duty refund – returned when one U.S. dollar was worth between $1.13 and $1.15 Canadian – has kept a number of B.C. companies afloat during the prolonged downturn the industry is now facing, Allan said. The collapse of the U.S. housing industry and the meteoric rise of the Canadian dollar have shrunk producer margins to nothing.

“If we hadn’t had seen the return of that money, the chances are that the economic carnage in the industry would be worse that what we see today,” Allan said. “I think you would have seen more bankruptcies, certainly more shutdowns and more curtailments. Some are using that money just to exist day-to-day. And some companies, like West Fraser and Canfor, have used that money to buy American assets.”

He described the agreement as a “mixed blessing.”

“It gave some structure to the relationship between Canada and the U.S. on softwood lumber. It brought in a dispute resolution process but it didn’t stop the complaints of the U.S. coalition.”
But it is the dollar, not the softwood tax that has hurt companies the most, Allan said. A one-cent change in the value of the dollar has a $130 million impact on the value of forest products in B.C.

The dollar has climbed 61 cents Cdn against the U.S. greenback since 2002, adding up to an $8-billion impact on the industry over the last five years.