Tree Trade

["Ian Murray" <seamus2001@xxxxxxxxx>]

A U.S.-Canada Forest Fight
Tariff Dispute Causes Layoffs and Rancor

By DeNeen L. Brown
Washington Post Foreign Service
Friday, December 28, 2001; Page E01


VANCOUVER, B.C.

Thousands of logs float idly in rivers in British Columbia, where
sawmills have gone quiet, workers have been laid off and the scent of
wood being cut has subsided. This is what it looks like on the other
side of the timber war being waged between the United States and
Canada.

The special duties of 32 percent that the United States imposed on
softwood lumber imports from certain Canadian provinces this year have
had a devastating impact on the Canadian economy, people here say. In
Canada, lumber is big. The economies of entire towns depend on lumber
mills. When mills go broke, towns do, too.

"It's not like in the United States, where you have a deep,
diversified economy," said David Emerson, chief executive of Canfor
Corp., one of the largest lumber producers in Canada. In British
Columbia, "the economy is driven by the forest industry," he said.
"When you lay that industry on its back, the whole province is laid on
its back."

Passions are inflamed on both sides of the border in a dispute that
seems to have no end. American lumber executives say the duties are
necessary to help save American jobs -- the Canadian government
unfairly subsidizes Canadian lumber, they contend, letting it undercut
U.S.-made lumber and put U.S. companies out of business.

But the tariffs' impact on U.S. jobs remains unclear. Canadian
officials say that despite the tariffs, softwood exports to the United
States, which average about $9 billion a year, haven't fallen
significantly. While sales from big exporting provinces such as
British Columbia are down, other provinces not covered by the tariffs
appear to have increased their sales to the United States.

Nonetheless, Canada's job base as a whole has taken a big hit,
Canadian officials say, as companies lose orders or lay off people to
help cover the cost of the tariffs. Officials say Canada has lost
about 30,000 jobs this way, 18,000 of them in British Columbia.

"There is anger, frustration and worries," said Surjit Mahal, who was
sent home for six weeks this year from the Hammond Mill just south of
Vancouver but now is back at work smoothing wood. "That totally
changes your life. I'm a father of four kids. All of a sudden you are
laid off. I didn't know how to tell it to them. 'Sorry, guys, we have
to postpone buying hockey equipment. I lost my job.' "

Lumber is an old cause of friction in U.S.-Canada trade. In 1996, the
two sides signed the Softwood Lumber Agreement to regulate it, giving
selected Canadian provinces fee-free access to the U.S. market for a
certain volume of wood but requiring Canada to collect fees on
anything above that level. Many U.S. builders opposed the agreement,
saying it raised the prices of wood used in American homes.

The agreement expired in March of this year. In August, the United
States slapped a 19.3 percent tariff on softwood lumber from Canada.
The ruling came after U.S. lumber producers alleged that in several
provinces the Canadian government unfairly subsidized lumber companies
by charging low "stumpage" fees to cut trees on federal land. The
tariff was suspended on Dec. 15 pending issuance of a final decision
on the complaint in March.

In October, the United States found that Canada was "dumping" wood in
the United States at illegally low prices and imposed an additional
12.6 percent anti-dumping duty.

British Columbia and Quebec have suffered the biggest blows. "Nobody
is making any money," Emerson said. "We're all losing. The American
consumer is losing. And they won't admit it, but the U.S. industry is
losing. It's hurting everybody. A lot of sawmillers are losing their
fingernail tips as they try to hang on."

More than 30 percent of the lumber used in the United States comes
from the woods of Canada. U.S. lumber producers say Canadian lumber
has been putting U.S. sawmills out of business -- roughly 120 in the
United States have shut down because of unfair Canadian practices,
they contend.

The Coalition for Fair Lumber Imports, a U.S. group, claims U.S.
companies cannot compete because the Canadian government subsidizes
local lumber companies by charging artificially low stumpage prices to
harvest lumber on government land, where most lumber is cut in Canada.
In contrast, U.S. companies normally cut on private land, where fees
are higher.

U.S. producers say that Canada is selling lumber at less than it costs
to produce it, and that therefore the duties are justified. "British
Columbia exports are coming down and they are flooding the market,"
said Scott Shotwell, executive director of the coalition, which
represents about 270 lumber manufacturers, sawmills, landowners and
labor unions in the United States.

Shotwell says the fees U.S. lumber producers pay for cutting down
trees on private land amount to about 70 percent of production costs.
But in Canada, he said, "the timber [fee] is only 30 percent of their
cost of production. They can cut, produce and ship their lumber all
the way down to Florida cheaper than a company in Arkansas can ship to
Florida."

U.S. politicians argue that Canada should tax lumber exports itself to
control the flow into the United States. Canadian officials argue that
lumber should be traded freely under the North American Free Trade
Agreement, which was designed to reduce tariffs and free up trade
across the border. But some Canadian company officials have started
saying NAFTA really means "Nearly Always Favoring the Americans," by
protecting U.S. companies from competition.

"We have a system in Canada that is different from the United States,"
said Duncan K. Davies, chief executive of Interfor, a Canadian company
that is operating mills on a week-to-week basis. "That doesn't mean
that it is wrong. It is just different. The Canadian government is not
about to privatize the land base to match the U.S. system. Every time
this issue has come before any tribunal, the decision has been that
the Canadian system is not subsidized."

U.S. and Canadian officials are negotiating, hoping they can reach an
agreement on softwood lumber before the World Trade Organization
issues a final ruling on the subject, probably in September next year.
But officials on both sides say they remain far apart on the issues.

U.S. officials have asked that Canada follow U.S. practice and sell
some timber at public auctions, something they say would raise the
price. Canadians are asking for a guarantee that they would have
long-term access to the U.S. market without fear that the United
States will apply punitive duties on Canadian softwood in the future.

"We are set on making changes in our provincial forestry management if
we are guaranteed market access," said Pierre Pettigrew, Canada's
minister for international trade. But "why would we go through all
this exercise if it was to be challenged in 18 months again through
these trade remedies, which we find quite punitive and unfair?"

In the meantime, Quebec officials have said they will negotiate a deal
with the United States separately. Earlier this month, the province's
government sought to get a special exemption from the countervailing
tariff on softwood in exchange for conceding to U.S. demands that
Quebec tax use of public forest land.

"We've asked the Americans to consider special treatment for Quebec,"
said Jacques Brassard, the province's natural resources minister. "If
we manage to come to an agreement on a lasting settlement with them,
even if the other provinces don't, we'll ask that Quebec be treated
separately and be exempted from currently imposed duties."

Last month, Canfor filed a lawsuit against the United States, claiming
that the duties imposed on softwood imports from Canada violated
NAFTA.

NAFTA's Chapter 11 clause allows companies that believe that a
government's action has harmed business to file for compensation
before an international tribunal. Canfor, which is one of the largest
providers of lumber to the Home Depot and Lowe's chains, has closed
down four sawmills and laid off 4,000 people.

"The fundamental frustration is we are dependent on U.S. markets, yet
we're sitting here year after year being attacked by phony arguments.
And we seem to have no recourse," Emerson said. "We thought maybe we
should try a different tactic. . . . We have a right to access and
fair trade. I would fight to my death the notion that there is any
kind of stumpage subsidy. It is not a subsidy."

Emerson said Canadian companies must landscape and restock lands where
they have cut, which he said makes up for low stumpage fees. "Where
you disrupt the forest, you have to landscape where the road was and
restock, all of which costs a lot of money," he said.

But in the meantime, mills have closed throughout British Columbia.
The Hammond Mill near Vancouver is working at half capacity to fill
orders from Australia and Japan and was shut down for six weeks this
fall.

John Neely, 39, whose job it is to keep the machines at the mill
running, said: "We've taken six weeks of down time. I've been here 20
years and we've never had any downtime. That is directly related to
the duties."