A key line in the recent throne speech declared: “The Government will strengthen its relationship with allies, especially with our closest friend and partner, the United States.”
And with a formal state dinner in Washington slated for March 2016 — a rare event in Canada-U.S. relations — that pledge will surely be put to the test by Prime Minister Justin Trudeau and U.S. President Barack Obama.
But if the past is any indication, particularly on the trade front, the Americans can make life very difficult for Mr. Trudeau.
In fact, very difficult discussions will need to begin soon on renegotiating the 2006 Canada-United States Softwood Lumber Agreement, which expired in mid-October. And you can be sure of one thing: Trudeau’s preference for “sunny ways” won’t work well with tough-minded U.S. trade negotiators.
While a one-year standstill period on any future trade litigation will provide Mr. Trudeau with some breathing room, the Americans will be pushing hard for the immediate reintroduction of punitive tariffs on Canadian lumber. At the moment, the U.S. side is unwilling to respond to a Canadian request to restart the lumber talks and is unhappy with simply extending the 2006 agreement.
Disputes with the United States over the export and harvesting of Canadian softwood lumber (and other forestry products like wood shakes and shingles) go as far back as the 1800s. Needless to say, they have been a constant splinter in Canada’s side ever since.
The best that we’ve been able to do is to buy trade peace over lumber for stints of eight or 10 years, sometimes less. In between periods of relative bilateral calm, we faced a steady barrage of U.S. trade harassment (so much for free trade) against our lumber exports (which exceed $8 billion annually).
Washington’s principal objection has been Canada’s forestry management practices and, more specifically, its use of low-cost stumpage fees on trees harvested on Crown land. It maintains, wrongly according to several previous trade dispute settlement tribunal rulings, that Canada unfairly subsidizes its softwood lumber sector — to the detriment of uncompetitive U.S. sawmills in various states.
Unfortunately, these mill owners have powerful friends in the corridors of power in the White House and the U.S. Congress. They also have a hard-charging, unyielding and relentless lobby group known as the U.S. Lumber Coalition, which really drives the U.S. process from a political and negotiating standpoint.
If the past is any indication, the U.S. lumber lobby will be making some unreasonable demands on the Canadian government to curtail lumber exports to the U.S. marketplace. A failure to comply will be met with further nastiness and threats of retaliation — in the form of onerous tariffs or duties on Canadian softwood lumber exports. The last time that happened in the early 2000s, the Americans collected something like $5.3 billion in duties and returned only $4 billion under the 2006 softwood lumber accord.
Not only will U.S. lumber interests ruin Mr. Trudeau’s first six months in office, but the lumber issue itself will also become a contentious point between Ottawa and the provinces. In particular, British Columbia, as Canada’s largest exporter of forestry products to the U.S., will want the Trudeau government to cut a quick deal that will lessen the negative impact of a prolonged dispute on B.C.
The province of Quebec will want to make sure that its provincial lumber sector is also insulated from U.S. protectionism. And the Atlantic provinces, for their part, will be happy with a swift resolution of the issue — especially since most of the trees cut in this region are from privately-owned lots (and thus exempted from the quota restrictions imposed on other provinces in the 2006 timber accord).
But the main problem for Mr. Trudeau is that he can’t sign a deal that substantially reduces the percentage of Canada’s softwood lumber share in the U.S. marketplace without upsetting Canadian premiers. And he is unlikely to be able to satisfy the demands of the premiers without attracting the ire of the U.S. lumber lobby (even though Canada’s share of the U.S. market has actually shrunk from 33 per cent in 2006 to 27 per cent today).
The forthcoming trade negotiations will be exceedingly difficult, will likely extend over a few years, and will certainly test Mr. Trudeau’s mettle and intellect. He should know that the Americans will not do Canada any favours, will not link trade matters to anti-ISIS efforts in the Mideast, and will not concede any ground lightly.
Whatever happens, though, the outcome is sure to set the tone for the bilateral relationship going forward. Mr. Trudeau will undoubtedly learn the hard way that dealing with the United States is still very much like the “elephant and the mouse” analogy of his father’s era. And if Canada does not watch its step, avoids looking for the quick deal and prepares a well-thought-out strategy, it could just as easily get crushed.