By James Ronald Skains
Journal Correspondent

Not only did the Canadian timber industry win the bulk of the concessions from the U.S. in settling the long running trade dispute over softwood lumber imports, but they also carried back home $4 billion dollars out the $5 billion held in escrow.

"This agreement resolves concerns on both sides of the border and allows us to focus on the larger trade relationship binding our two countries," U.S. Commerce Secretary Carlos Gutierez said in a statement. U. S. Federal Trade Representatives urged on by the U.S. Coalition for Fair Lumber Imports have insisted throughout this current five-year-long dispute that the Canadian government is unfairly subsidizing its timber and lumber industry.

The U.S. goal is to keep Canada's share of the U.S. softwood lumber market from exceeding the current level of around 34%; however, the deal does not impose any specific cap.

In 2002, U.S. tariffs on Canadian lumber started at an average of 27% but have fallen to its current rate of 11% because of various reviews, trade panel rulings and World Trade Organization decisions in favor of the Canadian lumber industry.

The lead U.S. Trade Representative on the pact was Susan Schwab. Prior to her appointment as U.S. Trade Ambassador on April 18, 2006 and confirmed on June 8, Schwab was Deputy U.S. Trade Representative since 2003. Ambassador Schwab served as Dean of the University of Maryland School of Public Policy from 1995 till taking the job as Deputy U.S. Trade Representative.

In 1994, Schwab published a book through the Harvard business School titled "Trade-offs: Negotiating the Omnibus Trade Act."

According to the Missoulian, Montana online news service, "The U.S-Canada agreement isn't a model of free trade, but it does offer a truce in a long battle. Although the agreement is scarcely noticed below the 49th parallel, the agreement plays prominently in the Canadian press and is under fierce debate in Canada's halls because key provisions are subject to legislative approval."

One Canadian industry analyst was quoted saying the "deal appears to be a list of U.S. requirements for Canada, as opposed to a negotiated agreement." Opposition to the agreement in Canadian lumber circles has led some to call for Canadian Trade Minister David Emerson to resign.

The Missoulian concludes, "one thing that's certain is that this dispute has gone on for too long and benefited neither country. All this said, nothing has been gained from the bitter cross-border fight over lumber."

The 80-page trade agreement document seems to have a list of do's and don'ts and hypothetical scenarios for the Canadian lumber industry. For instance, Canadian mills may sell lumber in the United states without restriction when the price of lumber is over $355 a thousand board feet.

According to the "deal," when lumber prices fall below $355, the Canadian government is to collect an export tax from its lumber mills on a sliding scale ranging from 5 percent to a maximum of 15% percent when prices fall below $315 per thousand board feet.

On the other hand, the Canadian government could voluntarily limit exports and avoid taxes. Under the terms of the agreement, both the United States and Canada will end all litigation over the softwood lumber dispute.

However, in early July, Random Lengths information services was posting a composite price for framing lumber at $317 per 1,000 board feet, down nearly 20 percent from a year ago.

John Rogasta, formerly the lead attorney for the U.S. Coalition for Fair Lumber Import whom the Piney Woods Journal twice interviewed in his Washington, D.C. law offices about the US Canadian Softwood Agreement has recently retired. According to two of his former Dewey Ballantine Law Firm colleagues, Harry Clark and Ashley Santener, Rogasta is now a part-time fisherman and part-time law professor. Dewey Ballantine law firm continues to represent the Coalition in the trade agreement.

Coalition Chairman Steve Swanson, CEO of an Oregon based timber and lumber manufacturing company stated in a July 1, 2006 press release concerning the "settlement": "This is a critical step toward what we hope will be a negotiated resolution of the dispute. The text of the agreement is a compromise on the part of both countries. The Coalition has consistently acknowledged this fact by engaging constructively with our government and supporting accommodation of reasonable proposals from Canada as how the settlement should be implemented."

The Agreement contains various forward-looking provisions. It establishes an 18-month process to develop substantive criteria for Canadian policy reforms that could exempt provinces from export charges and quotas that could exempt provinces from export charges and quotas and provides the basis for a long-term resolution of the dispute.

Although the Agreement is for seven years, it has an escape clause after three years allowing either country to end the deal after three years. Neil Shelly, who heads the Alberta Forest Products Association said, "the escape clause undermines its value. The value of the deal was to provide some long-term security, but there's a heck of a lot of difference between three and seven years."

Other concerns of the Canadian Forest Industry center on the long-term stability of the lumber trade relationship, the issue of logs on private land, and the remanufacturing sector and tax rules. Also of paramount concern is the fear that small and medium size lumber operations will have to hire addition people just to interpret the bureaucratic language of the Agreement.

For instance, one section of the agreement says, "When border measures apply, regions that have selected Option A are subjected to an export charge that increases in steps from 5 percent to 10 percent to 15 percent as the price of lumber falls below US$355, US$335 and US$315 per thousand board feet respectively.

This export charge is increased by 50 percent if a particular region's exports exceed 110 percent of its allocated share. Specifically, if the surge mechanism is triggered, an export charge of 5 percent will increase to 7.5 percent; an export charge of 10 percent will be increased to 15 percent; and an export charge of 15 percent will be increased to 22.5 percent. The allocated share is based on the region's average share of Canadian exports to the U.S. during calendar years 2004 and 2005."

In addition, the Quebec Forest Industry Council has gone on record as not supporting the agreement at this point. The Forest Industry Association in British Columbia is also not ready to support the Agreement at this point. British Columbia is Canada's largest producer of softwood lumber.

In 2002, half of the lumber mills in British Columbia were shut down as a result of U.S. tariff barriers according to CBC. The Agreement which contains nine separate annexes, affects individual companies, sectors and whole lumber producing regions differently. The Agreement also includes provisions to address potential import surges from Canada, provides for effective dispute settlement, requires extensive information exchange and defines special treatment for low and high value products.

Approximately US$5 billion has been collected in duties from Canadian lumber producers since 2002. US$4 billion will be returned to Canadian timber interests. A total of $1 billion will remain in the United States. The U.S. lumber companies that brought the trade complaints against Canada will receive $500 million.

$450 million will fund "meritorious initiatives" to include projects such as community assistance for timber-reliant communities, assistance for low-income housing and disaster relief, sustainable forestry practices, and other forestry initiatives.

The remaining $50 million coming to the U.S. will be used to establish a bi-national industry council, with an advisory board composed of representatives from the Canadian and U.S. lumber industries. The council will seek to strengthen and further integrate the North American lumber industry.

Under the deal, Canadian producers accounting for 95 percent of the outstanding duties paid to the United States must drop their legal challenges before it comes into force. Also, the agreement must be approved by Parliament. From the reaction across the northern border of the United States, this Softwood Agreement is the center of a very hot political dispute. Some political observers are predicting that the issue will ultimately become a ballot-box size issue and force new nationwide elections this fall in Canada.

Perhaps, Craig Campbell, senior forestry analyst with PricewaterhouseCoopers has best put the Agreement in perspective; "this deal appears to be even more complicated than past agreements. All the stakeholders have to narrow down the risk of the unknowns; guaranteed, it's going to bring some unintended consequences that right now we can't even fathom."

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