July 31, 2006

Fate of Canada-US softwood deal uncertain

OTTAWA (Reuters) - Canada will be forced to declare a
contentious softwood lumber trade deal with the United States
"dead before arrival" unless it gets more companies on board in
the next few weeks, Trade Minister David Emerson said on

In a parliamentary hearing, Emerson suggested for the first
time that there was room to amend the accord by consent of both
governments but denied there were any talks under way to that
effect. A spokeswoman from his office later clarified that any
amendments could only take place after the July 1 deal had gone
into force.

The Conservative government had previously stressed that
there was no chance of improving the deal because negotiations
had terminated.

The minister will make one last push to sell the deal,
wrapping up talks "shortly" with top executives of the softwood
industry, which last year exported $7.4 billion worth of lumber
to the U.S. market. Softwood, such as spruce and pine, is used
in construction markets.

"I think it's fair to say that if we do not have sufficient
buy-in from industry, there really isn't an agreement to bring
before Parliament," Emerson told reporters after appearing
before a parliamentary trade committee.

"So the first bridge we have to cross is to get the
agreement supported by the appropriate number of players in the
industry, otherwise you're dead before arrival," he said.

The trade deal would return $4 billion to Canada, but give
$1 billion to the U.S. lumber producers whose complaint in 2001
sparked the latest five-year trade battle.

Critics of the agreement in Canada have argued that Ottawa
has given away too much. The chief executive of Canfor, a key
supporter and head of Canada's largest softwood firm, said on
Friday he doubted the deal would actually be implemented
without some of the changes urged by critics.

As it stands, the deal cannot be implemented unless Ottawa
persuades the lumber companies that have paid 95 percent of the
duties to sign on to the deal, and all litigation must be

Emerson declined to say what might happen if that threshold
of approval wasn't reached.

"We'll cross that bridge when we get to it," he said when
asked about the consequences of just one firm refusing to drop

"It is technically possible for both parties to agree to
changes to the agreement," Emerson said. "Our position is that
we have to get 95 percent of the deposit recipients for this to

The opposition Liberals bashed the government for what it
called contradictory messages to industry, given its previous
insistence that any change was impossible.

"Now we learn straight from the Industry Minister Emerson
himself that this is not the case, that there is an 18-month
timeframe for amendments to be made by agreement by both
parties," Liberal trade critic Dominic LeBlanc said.

With an expected slump in the lumber market as U.S. housing
construction slows, Emerson said the deal would protect Canada
from further protectionist action by embattled U.S. firms.

"Think of a world where the markets are going into the
ditch, which is what we're experiencing today," said Emerson.
"If you think the U.S. industry is not going to take this
opportunity to take trade action, think again."

(Additional reporting by Allan Dowd in Vancouver)