OTTAWA – Canada’s uneasy forestry truce with the United States appears to be headed for a two-year extension that should keep the sniping at a low level into 2015.
Industry and government sources on both sides of the border confirm there are no major stumbling blocks to extending the deal and that an announcement is expected in the new year.
But with irritants still occasionally flaring up, at least one stakeholder — the U.S. lumber lobby — says it is opposed to any extension beyond two years. The seven-year pact expires in 2013.
Zoltan van Heyningen, spokesman for the U.S. Lumber Coalition, said the industry wants another two years to determine if peace with Canada is worth it, given that the current agreement has not stopped all disputes.
“If we find ourselves in the next two years we have to keep seeking arbitration over and over again, at some point we say it makes a lot more sense to go back to full-scale litigation,” he said in an interview while in Ottawa on Friday.
The most recent example of how hot the war can get came in 2002, when the U.S. slapped a punishing 27 per cent duty on imported softwood lumber from Canada.
Van Heyningen said the U.S. industry wants to keep the status quo for another couple of years in the hopes that by 2015 mills on both sides of the border will be on sounder financial footing.
That is also largely the view of Canada’s lumber sector, said Avrim Lazar, president of the Forest Products Association of Canada.
“Neither side really likes the agreement, but both sides accept that it’s a lot better than not having it,” Lazar said.
He said Canada’s producers would prefer unimpeded access to the U.S. market, rather than the current arrangement that includes export taxes depending on the price of lumber.
“In the end, both sides are saying let’s extend it and keep the predictability and stability.”
There is still no guarantee conditions will be any better for negotiating a deal in 2015, but they can hardly be worse.
The U.S. housing market, the principal buyer of Canadian softwood lumber exports, shows no signs of revival four years into the subprime mess, with housing starts still about one-third pre-slump’s heyday.
The decline in home construction has devastated Canada’s lumber sector. Exports of wood products to the U.S. tumbled from $19 billion in 2004 to $5 billion and $6 billion in 2009 and 2010 respectively, according to FPAC.
In response, the industry shut down mills, laid off workers, launched measures to increase efficiency, and according to U.S. interests, Canadian provinces such as British Columbia “bent the rules” in order to protect jobs.
Under the new agreement, the U.S. has already won favourable judgement on two complaints before the London court of international arbitration. A third, a complaint that B.C. is exaggerating the downgrading of the classification of wood ravaged by mountain pine beetle — to reduce stumpage fees producers have to pay — is headed to the oral argument stage in February.
Canada’s trade minister denies B.C. is in violation of the lumber agreement, as has the B.C. Lumber Trade Council.
Last week, the U.S. lumber coalition launched yet another complaint — that B.C. delayed setting the 2011 prices in the B.C. Coast region because they were about to go up, hence increasing producer costs.
Van Heyningen says stumpage is at the heart of most Canada-U.S. disputes and likely will remain so because most of Canada’s lumber sits on land owned by government, which sets the fees, while in the U.S. stumpage fees are set by auctions.
While the two sides continue to spar, even under the current truce, Lazar says one benefit of the U.S. market collapse has been to force Canada’s industry to look further afield for markets, particularly China, India and Brazil. Sales to U.S. have slumped, but shipments to China have exploded and approached $1 billion last year, from just over $100 million in 2006.
Still, Lazar said the U.S. will likely always remain Canada’s biggest and most desirable market.
“It is still the world’s most successful economy, they build their houses using timber frame, they have a relatively stable government, it’s easy to get there, and a lot of our companies have mills there. They are as close to family as you can get,” he said.
But Lazar added that Canadian producers will continue to target China as a secondary key market even after the U.S. recovers.