April 27, 2006

Canada, US reach lumber deal

By David Ljunggren and Sophie Walker

OTTAWA/WASHINGTON (Reuters) - Canada and the United States
reached a deal on Thursday to settle their long-standing fight
over softwood lumber, which had become a major irritant between
the major trading partners.

Officials in both countries said the agreement would end
U.S. duties on Canadian lumber and allow $4 billion to be
refunded, but some critics questioned whether Canada gave away
too much in the seven-year pact.

The countries have argued on and off for decades about
Canadian softwood, which is used mainly in home construction.
The United States insists the timber is unfairly subsidized --
which Canada has denied.

The current fight began with the 2001 end of a quota deal.
Washington imposed duties in 2002, which were battled over
repeatedly before the World Trade Organization and North
American Free Trade Agreement panels.

Canada sold $7.4 billion in lumber to the United States
last year, and has traditionally held a one-third share of the

The agreement will end all litigation, U.S. Trade
Representative Rob Portman said.

Reports of a settlement leaked out on Wednesday, and
objections within Canada forced some last minute modifications
before it was publicly announced by Canadian Prime Minister
Stephen Harper in Parliament.

"I am delighted to announce to you that we have reached an
agreement that will finally put an end to this conflict,"
Harper said to loud cheers from legislators belonging to the
ruling Conservative Party.

Harper and President Bush congratulated each other by
telephone, the White House said.


While the trade dispute has generated little public
interest in the United States, talk of a settlement was major
news in Canada, where the lumber industry is a big employer in
several regions.

Canadian opposition politicians -- who said the duties
contravened NAFTA -- accused Harper's minority government of
caving in to Washington by getting back only about 80 percent
of the money Canada has paid in duties since 2002.

"It's a disaster for Canada, for free trade and Canadian
industry," said Bill Graham, leader of the official opposition
Liberal Party.

Harper said the three main lumber producing provinces --
British Columbia, Quebec and Ontario -- had all signed on to
the terms of the deal, although the last minute changes had
been needed to bring Quebec and Ontario on board.

Under the deal, Canada will have full access to the United
States, as long as the price of lumber remains at or above $355
per thousand board feet. Canada has traditionally held a
one-third share of the U.S. market.

If the price drops, Canadian producers will either be
subject to a border tax or a combination of a tax and
restrictions on volumes. The current market price for lumber is
about $370, officials said

Over the past decade lumber prices have mostly been above
$355, a U.S. official said.

The Canadian Parliament will have to pass legislation
legalizing the export taxes, and the U.S. industry will have to
agree to not file injury claims for the agreement's duration.

The U.S. lumber industry lobby group whose original trade
complaint sparked the duties praised the deal.

"We applaud the tireless efforts of the Bush administration
officials who negotiated a means of offsetting Canadian unfair
lumber practices," said Steve Swanson, chairman of the
Coalition for Fair Lumber Imports industry lobby group.

Canadian industry reaction was divided. A group
representing western producers gave it conditional support and
one representing mostly eastern and central producers said it
was a bad deal.

"I tip my hat off to the Americans, they did very well in
this," said Carl Grenier of the Montreal-based Free Trade
Lumber Council.

($1=$1.12 Canadian)

(With additional reporting by Randall Palmer and Louise
Egan in Ottawa, Allan Dowd in Vancouver and Gilbert le Gras in