CANADA

A new storm over trade

MICHAEL ROSE January 12 1987
CANADA

A new storm over trade

MICHAEL ROSE January 12 1987

A new storm over trade

CANADA

It was the sort of round-the-clock bargaining session usually endured by labor negotiators. Just 90 minutes before a midnight deadline on Dec. 30, a spokesman for the American lumber industry emerged from a Washington, D.C., boardroom to announce that the bitter Canada-U.S. dispute over softwood lumber exports had been settled. Canada had agreed to impose a 15-per-cent export tax on lumber going to the United States and to give the American government detailed information about its enforcement.

In return, a coalition of American lumber companies withdrew its complaint that Canadian lumber is unfairly subsidized.

Declared Canada’s weary chief negotiator, Donald Campbell: “We’ve got a deal that’s good for Canada and good for both sides.”

Critics of the agreement charged that by abandoning its legal challenge to an interim duty imposed last October by the U.S. commerce department, Canada had implicitly acknowledged that it was unfairly subsidizing its lumber exports. And prompted by a controversial letter from the U.S. government to American lumbermen, the critics also warned that the agreement gives the United States a veto over any reduction in the tax —undermining Canadian sovereignty as a result. In Ottawa, the opposition Liberals demanded that the government recall MPs two weeks early from their Christmas break to debate the agreement—a demand the government quickly rejected. And an outraged Adam Zimmerman, chairman of Vancouver-based MacMillan Bloedel Ltd., charged that the deal made “an industrial paraplegic” of the Canadian lumber industry.

For the Canadian government, the key feature of the agreement was that the estimated $600 million a year to be raised by the new export tax will stay

in Canada rather than go to the U.S. Treasury. That would have happened if the U.S. commerce department had made permanent—as it was expected to do if there had been no agreement—its preliminary order of a 15-per-cent duty on Canadian softwood. As well, Canadi-

an officials said that they had avoided the dangerous precedent of allowing a U.S. countervailing tariff against a Canadian product to become law.

The agreement was hammered out during two gruelling days of negotiations in the U.S. Trade Representative’s building, one block from the White House. Earlier talks had broken off on Christmas Eve, with major issues unresolved. Canadian officials said that the American lumbermen appeared willing to accept the 15-percent figure offered by Canada, but were not satisfied that Ottawa would ensure the export charges would be properly enforced. In a final effort to resolve the dispute, Campbell and other senior Canadian officials flew to Washington on Dec. 29. At 2 p.m. Campbell and Deputy U.S. Trade Representative Alan Woods began meeting

with their officials in a second-floor boardroom and negotiated with only a few short breaks until 3 p.m. the next day. The two teams hammered out a draft agreement, but it took another 71/2 hours before American lumber leaders accepted it. Said spokesman

Bill Lange: “The U.S. lumber industry will once again be able to compete fairly with the Canadian lumber industry. That is all we ever wanted.”

Under the agreement, the Canadian export tax will be levied on lumber shipped from Canadian mills beginning on Jan. 8. Federal officials plan to meet with the provinces to work out a way to replace the federal tax with increases in provincial timber charges—known as stumpage fees—so that the money will go to the governments that own the timber. But the United States has the right to monitor and approve such changes to ensure that their total value adds up to the agreed-on 15 per cent.

Canadian officials insisted that, despite such stringent requirements, Canada’s sovereignty was not put in jeopardy. But the letter sent by the U.S. government to the American lum-

ber industry last week indicates that the two governments differ sharply on the meaning of the accord. The controversial letter promises to provide information to the U.S. industry on how the tax is implemented and not to agree to “any elimination or reduction of the export tax without prior consultation” with the industry.

The letter also pledges to make sure that money collected through the export tax or increased stumpage fees is not used to help the Canadian lumber industry. That directly contradicts statements made in Ottawa by federal Forestry Minister Gerald Merrithew on the night the agreement was signed. Merrithew said that he hoped the money would be used to help the forest industry replace some of the jobs that will be lost as a result of the increased charges. At a New Year’s Day news conference in Ottawa, Campbell said that the letter was just an “unfortunate sideshow to the main event.” It was, he said, “at variance with the carefully negotiated language of the agreement itself.” And on Friday the U.S. Embassy in Ottawa issued a statement saying that the agreement does not give Washington the right to interfere in how Canada administers the new export tax.

Government critics charged that the administration of the agreement will open the way for the United States to meddle in the management of other Canadian resources. Said NDP Leader Ed Broadbent: “The Mulroney government has accepted a major infringement on the sovereignty of our nation.”

For their part, many Canadian lumbermen said that the federal government had badly mishandled the softwood case from the beginning. Said Vancouver-based industry analyst Charles Widman: “It was a total disaster. They completely underestimated the powerful opponent they were dealing with.” Several analysts predicted that the long-term impact of the tax will be devastating. Thousands of forestry jobs will be lost, they said, and all the profits the lumber industry earned during 1986 will be wiped out. Even more worrisome for Canada: growing signs that U.S. protectionism could cause more difficulties for Canadian exporters in 1987. Harry Horrocks, spokesman for a group of U.S. lumber dealers who opposed the duty on Canadian lumber, predicted that the softwood affair was just the “opening salvo” in a series of trade battles that Canada will have to fight against hard-pressed American resource industries this year.

— MICHAEL ROSE in Washington with PAUL GESSELL in Ottawa and JANE O’HARA in Vancouver

PAUL GESSELL

JANE O’HARA