April 27, 2006

US, Canada reach lumber deal

By Sophie Walker

WASHINGTON (Reuters) - The U.S. and Canadian governments
have reached a deal to resolve a dispute over lumber imports
which American timber interests are willing to accept, a U.S.
trade spokeswoman said on Thursday, adding the final decision
now lay with Canadian industry.

But prospects for a final resolution to the decades-long
tussle dimmed when angry Canadian industry representatives said
the deal was a "terrible" one for them. U.S. lumber interests
said they thought the deal had only a 50-50 chance of success.

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 Canada
lumber exports in 2002 and is currently sitting on around $4
billion it has collected from the duties.

"Late Tuesday night we reached a tentative agreement with
the Government of Canada that would resolve the long-standing
softwood lumber dispute between our countries," Neena Moorjani,
spokeswoman for the U.S. Trade Representative's office, told

"Given the nature of the agreement and ongoing litigation,
it will ultimately be up to our respective industries to decide
if they want to embrace a solid market-based agreement that can
bring some stability to the North American lumber market or if
they choose instead many more years of litigation, acrimony and
market uncertainty," she said. "The U.S. industry was briefed
about the agreement, and despite reservations, has indicated
its willingness to accept it."

Sources told Reuters on Wednesday that under the terms of
the 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.

But one source close to Canadian timber interests said on
Thursday that industry representatives were very unhappy that
the two governments had hammered out the deal without
consulting them and that they were likely to reject it.

"The USTR statement is virtually written by the (U.S.
lumber) coalition, which was at the negotiating table," the
source said. "The deal keeps Canadian lumber limited in the
U.S. market forever and they get half a billion dollars as a
reward for filing cases and bringing claims proved legally to
be wrong. They lost. Now they win. They even get paid. They're
going to say no?"

"The Ontario government has already said no," the source
added. "The British Columbia government apparently is saying
no. The Ontario, Alberta and British Columbia industries say
no, although there is plenty of arm-twisting going on this

Speaking on CBC television, Carl Grenier, vice president of
the Montreal-based Free Trade Lumber Council, said he thought
it was a "terrible deal for Canada."

"It restricts our growth in the U.S. market and means less
exports, obviously ... half a billion dollars would be given to
our direct competitors," he said. The council groups around 40
percent of the Canadian lumber industry.

"This is the old pay-the-mugger argument. We were docked
C$5.3 billion without any reason and now they're saying, 'You
should be grateful that we're giving you 80 percent back.' Why
is that? What is the logic behind leaving a billion dollars
behind? There's no logic," said Grenier.

Barry Cullen, executive director of the U.S. Coalition for
Fair Lumber Imports, said the deal risked being scuppered by
complex negotiations between Canada's provinces and lumber
companies which had killed previous attempts to resolve the

"It's essentially a cat fight in Canada," he said. "One of
the problems all along through the history of this is that we
as a coalition can come to an agreement, but Canada can't.
Their federal officials report to the provinces and the
provinces talk to the companies."

To charges by Canadian industry that U.S. lumber companies
had no right to any of the collected duties, Cullen responded:
"A settlement agreement can do anything it wants. The money
doesn't have to go back."

No one at the office of federal International Trade
Minister David Emerson was available for comment.

(With reporting by David Ljunggren in Ottawa)