B.C. is bracing for pain as the U.S. lumber industry stands poised to launch a punitive softwood lumber trade battle as early as Thursday.
That’s when a one-year “standstill” agreement tacked onto the 2006 Canada-U.S. Softwood Lumber Agreement expires, opening the door to years of costly litigation and likely mill closures and job losses.
“With the expiration of the standstill and no agreement attained, the Coalition has no choice but to move to initiate trade cases against unfairly traded imports from Canada at the most effective time,” the U.S. Lumber Coalition told Inside U.S. Trade in a statement Wednesday.
That news will be harsh, if not devastating, to interior communities like Quesnel, the town of just over 10,000 people (2011 census) that faces the possible shutdown of two mills and a loss of 400 jobs if Ottawa can’t find a solution, said Conservative MP Todd Doherty.
“There’s a lot of concern, there are going to be mill closures for sure,” said the MP for Cariboo-Prince George, a region where the forest products industry has already been badly damaged by the mountain pine beetle infestation.
“This means small mom-and-pop operations not just in my riding, but across Canada, will face a lot of uncertainty.”
B.C. Forests Minister Steve Thomson said any fight will be “very expensive” and complex, but the provincial government has yet to estimate what it could cost taxpayers.
“We know it’s challenging and while our preference remains free trade, a managed trade agreement is preferable to litigation,” Thomson said in an interview. “It’s costly for producers, costly for government and also harms U.S. consumers. We’re hopeful the continued negotiations will bear some fruit, but we’re also prepared to fight any trade litigation that might be launched and defend both B.C. and Canada.”
B.C. admits the dispute, possible duty applications, as well as fibre-supply challenges will put “tremendous financial stress on the industry.” Thomson wouldn’t say what government could do to help mills that might close and workers who could lose their jobs, only that the province will work with the industry once the impact of the dispute becomes clearer.
Economists say Metro Vancouver is largely insulated from the economic impact, thanks to growth in sectors like housing construction and high tech.
“Much of the growth we are seeing in B.C. is urban-based, and urban areas of the province will not feel much impact from reduced logging and lumber production,” said economist Jock Finlayson, executive vice-president of the Business Council of B.C.
“The interior and the north will feel most of the pain.”
While B.C.’s economy overall will be hurt, the trade dispute won’t drive the province into recession because of other sectors like tourism, the film and TV industry, and the partially-recovering mining sector, he said.
Gerry Salembier, assistant deputy minister in charge of the Western Economic Diversification’s Pacific region, singled out Quesnel when he told a committee of MPs in Ottawa last month jobs are “really at risk” in small communities.
A trade dispute may push Ottawa and Victoria to look for ways to help communities “adapt and think about opportunities” outside the forestry sector, he said.
Canadian lumber exporters had their access to the U.S. market limited by a combination of export taxes and quotas as a result of the 2006 accord, which expired last October. The one-year standstill agreement prevented U.S. companies from launching a new action while both governments tried to find a new settlement.
The 2006 accord, while far from perfect for an industry that prefers free trade, at least provided stability for an industry that says it “supports” 145,000 jobs in B.C.
If a legal action is started, Canadian exporters can expect to start paying preliminary countervailing duties starting near the end of March 2017. A final U.S. government determination on the level of countervailing and anti-dumping duties would be set at the end of 2017.
Canadian and U.S. negotiators held the latest in a long string of meetings in Washington, D.C., Wednesday, though analysts have long assumed there will be no breakthrough despite hopeful words expressed in June by Prime Minister Justin Trudeau and President Barack Obama.
“No one is holding their breath for a new deal anytime soon,” Naomi Christensen, a lumber policy analyst with the Canada West Foundation, said Wednesday.
“Now it’s all about preparing for trade action from the U.S., as well as searching out opportunities in other markets beyond the U.S.”
B.C.’s three largest publicly-owned companies — Canfor, Interfor and West Fraser Timber — have hedged their bets since the 2006 agreement by making significant investments in the U.S.
“Any duties imposed by the U.S. are going to have the biggest impact on the smaller companies who are not able to integrate into the U.S. market,” she said.
There has also been a B.C.-led push over the past decade to export more wood products to Asian markets.
Roughly 15 per cent of Canada’s exports go to buyers in China, up from less than one per cent prior to 2006.
That means B.C. is less vulnerable than landlocked producers in the Prairies, Quebec and Ontario, she noted. (Atlantic Canada has been exempt from previous trade actions because its woodlots are largely owned by private interests, and not the Crown).
The Canadian industry’s main lobby group issued a statement Wednesday praising the efforts of the federal and B.C. governments to try to forge a negotiated settlement, and restated its view that a “managed trade” deal is preferable to litigation.
“However, we are also fully prepared and working alongside the Canadian government to defend the industry against any potential trade actions brought by the United States, as we have done successfully in the past,” said B.C. Lumber Trade Council president Susan Yurkovich.
In an interview, Yurkovich said she’s optimistic Canadian and U.S. negotiators can find a settlement before duties can be imposed in early 2017.
Prior to the 2006 accord, Canadian companies were stuck for years paying duties that started at 27 per cent in 2001, and were gradually lowered to 11 per cent by the U.S. Commerce Department.
Canada has consistently won before international tribunal panels when it challenged past assaults by the U.S. industry starting in the 1980s.
But those battles, fought before tribunals set up under the authority of the North America Free Trade Agreement and World Trade Organization, typically lasted four to five years.
While Canadian companies get their duties reimbursed if Canada wins its case, legal costs for the entire industry can amount to hundreds of millions of dollars over that period.
The B.C. government, meanwhile, has switched chief negotiators on the softwood lumber file.
Dana Hayden, a former B.C. deputy minister for forests and international trade, left the job on Sept. 30 after two years as chief negotiator.
B.C. replaced her with John Allan, the former president of the B.C. Lumber Trade Council when the last softwood lumber dispute was settled in 2006.
As well, B.C. has assigned an associate deputy minister to “oversee the preparation for litigation” in the dispute, according to an internal government letter.
Thomson said the U.S. has not moved much in its position so far.
“Their motive is to try and get a firm ceiling on shipments into the U.S., a hard cap quota, and they see it as protecting their industry,” he said. “We’d be making the arguments that it is costly for their producers, it also harms U.S. consumers in that approach and that’s all part of the negotiation. They have maintained a firm position so far but we are working to be as constructive as we can.”