April 26, 2006

Canada, US strike lumber deal

By David Ljunggren and Sophie Walker

OTTAWA/WASHINGTON (Reuters) - Canada and the United States
reached a tentative deal on Wednesday to end a long-running
dispute over lumber exports but key Canadian players said they
would reject what they saw as a grossly unfair agreement.

The two countries have long been at odds over whether
Canada's provinces are subsidizing lumber producers by charging
below-market rates to log forests.

The United States slapped countervailing duties on Canadian
lumber exports in 2002 and is currently sitting on around $4
billion it has collected from the duties. Last year Canada
exported $7.4 billion of softwood to the United States.

Talks between the two sides restarted after President Bush
and Prime Minister Stephen Harper last month instructed their
officials to look at options for resuming negotiations.

Provincial government and industry officials said that
under the terms of the seven-year framework deal, the United
States would return most of the money it has collected in
duties and limit Canada's market share to around 34 percent.

Previous outline deals have foundered on protests from
Canada's lumber firms and the provinces where they operate, and
unhappiness with the framework agreement arose quickly on

A Canadian industry source in Washington said the two
national governments had hammered out the deal without talking
to the major players on the ground.

"Every industry group in the country has said 'no', rejects
it, wasn't consulted about it. The Canadian government was busy
consulting with the U.S. industry but neglected to consult with
its own industry," the source told Reuters. "They've announced
that they have a deal, only they don't."

The source said industry representatives were particularly
angry about what they saw as an illegal proposal to pay $1
billion of disputed duties back to the United States.

Most Canadian lumber is grown in the provinces of British
Columbia in the west and Quebec in the east. A smaller portion
comes from the central province of Ontario, which said it was
"very upset" by the terms of the deal.

Canada's federal government and the office of the U.S.
Trade Representative could not be reached for comment.

The current round of fighting over softwood lumber began in
April 2001, days after the expiration of a five-year deal that
had restricted duty-free shipments from Canada's four largest
timber producing provinces to 14.7 billion board feet.

The division of quota among provinces was a sore point in
British Columbia, which produces half of Canada's softwood
exports to the United States and felt that Quebec and Ontario
had too large of a share of the duty free shipments.

In 2003, negotiators reached a framework deal that would
have limited Canada's share of the U.S. market to 31.5 percent
for at least three years. The countries would have divided the
duties paid with 52 percent returned to Canada and 48 percent
divided between U.S. lumber producers.

That deal faltered, in part, because of objections from
Canfor Corp., Canada's largest softwood producer, whose chief
executive at the time was David Emerson -- now Canada's
international trade minister.

(With additional reporting by Randall Palmer and Louise
Egan in Ottawa and Allan Dowd in Vancouver)