Canada Takes Firm Stand on Softwood

Canada’s top trade official turned up the heat Tuesday in a nasty lumber dispute with the United States, filing a complaint with the World Trade Organization and threatening to curtail U.S. access to his country’s energy resources.

In a fiery speech to Canadian manufacturers, International Trade Minister Pierre Pettigrew accused U.S. officials of manipulating the trade rules to suit “their own, narrow, privileged actions.”

“You don’t hit a guy on the forehead with a 2-by-4 before asking him to help on the energy front,” Pettigrew told the industry representatives in Edmonton, Alberta, according to an aide.

Pettigrew was referring to the Commerce Department’s decision last month to impose a 19.3% punitive duty on Canadian softwood--just the latest twist in one of the most contentious and long-running disputes between the two neighbors.

Depressed Western Canadian lumber companies claim they could lose up to 20,000 jobs if the U.S. begins imposing the punitive duties next month. Canadians have grabbed 39% of the $20-billion U.S. softwood market, up from 21% a decade ago. The Canadians have a powerful ally in the U.S. home-building industry, which has warned that 300,000 home buyers will be unable to buy a new home if Canadian softwood is restricted and lumber prices shoot up further.

Canadian softwood includes pine, fir and other woods used largely in home construction.

Commerce officials took the action after the International Trade Commission ruled that a sharp surge in subsidized Canadian lumber was threatening U.S. producers. The U.S. argues that the Canadian government, which controls most of that nation’s forest land, unfairly supports its lumber industry by charging artificially low stumpage, or cutting, fees. The Canadians defend the low fees, saying they are appropriate given their country’s vast timber resources.

This dispute has been escalating since March, when a five-year bilateral softwood lumber agreement expired. John Ragosta, counsel for the Washington Coalition for Fair Lumber Imports, a timber industry group, said Canada’s WTO complaint has no legal basis. He called Pettigrew’s linkage between the lumber dispute and energy a “silly” attention-getting ploy.

“Clearly, they would rather pay lawyers than address the real issue,” he said.

Christopher Sands, director of the Canada project at the Institute for Strategic and International Studies in Washington, believes the Canadians have a strong case. He said the government has raised stumpage fees and reduced other support for its producers, but that its timberland is much cheaper than in the U.S. because of lower demand. “This is one of Canada’s great advantages,” he said.

A trade spat between the U.S. and its closest trading partner would be painful for both sides. But it would be an unequal battle. While the U.S. sends 20% of its exports to Canada, nearly 85% of Canada’s exports are shipped to the U.S., an amount equal to 45% of that country’s gross domestic product.

“The U.S. could endure the pain a lot better than they can,” Sands said.

However, Canadian officials are not above playing the energy card. In his speech Tuesday, Pettigrew warned that the lumber dispute could diminish Canada’s support for the construction of a pipeline to ship natural gas from Alaska to the U.S.

British Columbia sends two-thirds of its natural gas to the U.S. and was a major supplier of electricity to California during the recent crisis.

“It can be said that Canadians would want to help Americans on the energy front but Canadians will probably feel more like helping on the energy front if Canadians are happy,” Pettigrew told his Canadian audience.

Analysts were skeptical Canada would follow through with its threat, given that country’s huge investment in infrastructure to boost energy exports.

“The linkage of the lumber dispute to energy cooperation doesn’t seem to be serving Canadian interests,” said Jeffrey Schott, a WTO expert at the Institute for International Economics in Washington.

The Canadian softwood lumber complaint alleges the U.S. punitive duty, including its finding of an import surge, was inaccurate and doesn’t meet WTO standards. It also challenges the U.S. decision to establish an industrywide duty rate rather than establishing company-specific rates.

Canada has requested emergency consultations with the U.S. within the next 10 days, the first formal step in the WTO dispute settlement process. The U.S. and Canada were scheduled to meet Aug. 30 to discuss this issue, according to the U.S. Trade Representative’s office.

Richard Mills, a USTR spokesman, said Canada’s complaints are unjustified and his office is prepared to “defend our actions in the WTO.”

This is the fourth WTO complaint Canada has filed related to the softwood lumber issue, according to Ragosta, the Washington attorney. One was dismissed and the others are making their way through the dispute process.