August 21, 2006

Canada-US lumber deal seen winning support

By Louise Egan

OTTAWA (Reuters) - The Canadian lumber industry has pledged
"substantial support" for a softwood lumber agreement with the
United States, enough for the pact to proceed to Parliament,
Michael Wilson, Canada's ambassador to the United States, said
on Monday.

Two major producers that were seen as potential holdouts on
the deal, West Fraser Timber Co. and privately held Tolko
Industries, both announced on Monday that they would give it
conditional support, albeit reluctantly.

Canadian Trade Minister David Emerson had given producers
until the end of Monday to announce if they would support or
reject the deal, which critics said gave away too much to the
United States.

"By the close of business today, we should be in very good
shape," Wilson told reporters after testifying to a
parliamentary trade committee.

Lumber futures in Chicago closed higher on news that
support for the deal was emerging. Expectations are that
acceptance of the deal could curtail some mill production and
bring a firmer tone to cash lumber prices.

Wilson said the deal could be sent to Parliament for
approval even without the 95 percent industry support the
government had previously set as a prerequisite for

"It's not an absolutely fixed number," he said.

The government had also asked all firms to drop litigation
in the dispute. However, Wilson said that companies refusing to
drop litigation wouldn't be able to veto the deal.

Canada and the United States finalized the deal on July 1
to end their longstanding trade dispute over softwood lumber,
which has tainted bilateral relations for the past five years.
U.S. companies accused Canada of unfairly subsidizing lumber,
sparking a series of legal battles. Canada has denied the
allegations, accusing the United States of protectionism.

The negotiated settlement involves returning to Canada
about $4.3 billion in duties paid to the United States.

Canadian firms exported $7.4 billion in softwood lumber
such as spruce and pine to the United States last year, where
it is used in the construction industry.

U.S. duties would be replaced by Canadian taxes and quotas
on its own exports, designed to keep lumber prices in the
United States from dropping too low.

Initial industry rejection of the deal led Emerson to agree
to several measures that appear to have appeased industry
demands, including a provision that critics complained would
have allowed the U.S. to unfairly opt out of the deal.

West Fraser, Canada's second largest softwood producer said
that despite agreeing not to block the deal's implementation it
still had "serious reservations" about the plan.

One lumber exporter who testified to Parliament said the
deal will cost jobs and markets.

"We will not support the deal ... We're being snuffed,"
William Van Bergeyk, senior vice-president of forest products
for Federated Co-operatives Ltd., told committee members.

Even those who expect the deal to go through said it would
be a "hollow victory."

"We are capitulating to the deal, not endorsing or
supporting it but capitulating because we have no choice," said
David Milton, president of the Ontario Lumber Manufacturers'

The opposition Liberal Party has been highly critical of
the agreement and there had been speculation the minority
Conservative government might call a snap election if the
Liberals voted down the deal in Parliament.

But on Monday, the Liberals signaled they would back the
deal if a solid majority of the industry supported it.
Legislation authorizing the agreement will pass handily if the
Liberals join the Conservatives in supporting it.

($1=$1.12 Canadian)

(Additional reporting by Randall Palmer, Allan Dowd)