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Spokane, Washington  Est. May 19, 1883

Lumber, NAFTA, Mexico signal long Canada-U.S. trade spat

Mill workers listen as British Columbia Premier Christy Clark speaks about U.S. import duties on Canadian softwood lumber, at Partap Forest Products in Maple Ridge, British Columbia on Tuesday. (DARRYL DYCK / Associated Press)
By Josh Wingrove and Greg Quinn Bloomberg

A long road remains after Donald Trump fired the starting pistol in yet another softwood lumber fight, one of several trade disputes the U.S. and Canada are set to spend years sorting out.

The U.S. president announced countervailing duties of up to 24 percent on softwood lumber from Canada on Monday, drawing rebuke and a threat of legal action from the northern neighbor. While it could have been worse – Canadian lumber shares surged Tuesday after some analysts expected higher duties – it won’t be quick. The last softwood spat ran from 2001 to 2006.

“This isn’t an easy fix,” Derek Nighbor, chief executive officer of the Forest Products Association of Canada, said Tuesday on Bloomberg TV Canada, adding duties can’t be appealed until they’re finalized early next year. In the meantime, they could mean an extra $370,000 or more a month for a single Canadian mill. “These are very significant costs, and businesses are going to have to figure out: How do you manage through this? How do you cash-flow through this?”

Among the next steps the U.S. may take are anti-dumping duties, with a decision due June 23, and finalized duties expected by January of 2018.

Canadian Foreign Minister Chrystia Freeland said Wednesday her country thinks a negotiated settlement is best, but she was also the first minister to explicitly pledge a legal challenge of the lumber measures. “I would say to my American friends: Be nice to your clients,” Freeland said in a Bloomberg Television interview in Berlin. “We’re going to take it to court and we’re confident that, as has been the case every single time in the past, we’re going to win.”

Trump, who last week pledged to fight Canada’s dairy quotas, is igniting tension between the two countries just as the U.S. is expected to trigger a 90-day notice period to start talks over the North American Free Trade Agreement. Negotiations look sure to run into Mexico’s presidential cycle in 2018, with U.S. midterm elections due later that year and a Canadian election due in 2019.

Canadian government leaders are somewhat at odds over how to proceed – the country is considering some kind of aid package. “The objective is to work with the provinces to look at all the solutions that may exist,” Innovation Minister Navdeep Bains said Wednesday. “There’s a range of options that are being discussed right now.”

The provinces don’t all agree. Ontario announced new funding for logging road construction Wednesday and called for the federal government to offer loan guarantees. British Columbia Premier Christy Clark, meanwhile, warned against hasty responses – the core of the U.S. lumber complaint is that Canadian producers are already subsidized, so any new Canadian measures could buoy a U.S. argument.

“Unfair subsidies to the B.C industry could really jeopardize our position in court,” Clark said Tuesday. “Cooler heads need to prevail. We have to be thoughtful and not jeopardize the long-term future of B.C. forest workers.”

Quebec, where 60,000 people work in the forest-products industry, is putting in place a program of loans and loan guarantees. Quebec’s aid package could be worth as much as C$300 million in the short term, with the province expecting federal support could soon be coming. “The question now will be how and when,” Quebec Economy Minister Dominique Anglade said, adding Quebec’s response would “respect all international trade commitments.”

The lumber spat has been simmering a long time, and it’s not just a fight between Trump and Canadian Prime Minister Justin Trudeau. U.S. industry needs to approve any deal.

“The Obama administration was essentially acting as a go-between” in talks between Canada and industry, former U.S. ambassador to Canada Bruce Heyman said in a Bloomberg TV interview. Trump is hurting the chances of a deal by stoking rhetoric, he said. “It’s just a huge mistake, to take your best friend and next door neighbor and start poking at them really hard,” he said.

Canada’s government was coy on what its next steps would be, particularly on any challenge through the World Trade Organization or through NAFTA itself, as it has done in the past.

“Canada always wins these,” James Blanchard, a former U.S. ambassador to Canada and ex-governor of Michigan, said on a panel Tuesday at the Great Lakes Economic Forum in Detroit. “Hockey is not our favorite pastime,” he said, referring to Americans. “Litigation is.”

Raymond Chretien, Quebec’s chief lumber negotiator, said American attitudes are hardening against a deal and that he is not optimistic a deal can be reached this year. If it heads to a legal fight, “in the past it has taken three, four, five years for that process to be over,” Chretien said. “Nobody knows exactly when those negotiations will start.”

Trudeau – who had spent months courting the U.S. president – spoke by phone with Trump Tuesday evening. The Canadian leader “refuted the baseless allegations” by the U.S. in its “unfair duties,” according to a statement from the prime minister’s office. They also discussed Trump’s recent pledges to press Canada for changes to its dairy market which “heavily favors the U.S.,” according to the statement. In his own summary, Trump said only that they “discussed lumber coming into the United States” during a “very amicable call.”

Canada’s government circulated a memo from the Washington-based National Association of Home Builders that estimates the measure will increase the cost of U.S. homes and eliminate 8,241 full-time U.S. jobs.