This article was originally published in The Globe and Mail on May 26, 2017.
Gordon Ritchie is a former free-trade negotiator, special envoy for softwood lumber, and author of Wrestling with the Elephant: the Inside Story of the Canada-US Trade Wars.
In the iconic film, Groundhog Day, the hero is obliged to relive the day’s events over and over again. That also describes the softwood-lumber dispute between Canada and the United States.
The two most important points to understand about the latest round in this never-ending dispute are these. First, it was not triggered by U.S. President Donald Trump’s aggressive “America First” agenda. The dispute, in its current form, dates back to the early 1980s (some would say 1880s) and is now in its fifth iteration. Groundhog Day, indeed. Second, it truly has little to do with Canadian resource-management practices, although these have long been used as the pretext by U.S. industry protectionists and their agents in successive administrations and U.S. Congresses. Imports from Canada reduce lumber prices in the United States, to the benefit of American home buyers and builders, but at the expense of producers. It is worth billions of dollars to these producers to be able to raise prices without fear of being undercut by more efficient producers from the north. And a small fraction of those billions is enough to buy the highest-priced lawyers, lobbyists and legislators.
My first encounter with this file was almost by accident. In the early days of the Canada-U.S. free-trade negotiations, my colleague, Simon Reisman, and I were summoned to meet with Commerce Secretary Mac Baldridge, highly regarded for his integrity. Mr. Baldridge was fully aware the U.S. industry had claimed it was being injured by subsidized imports from Canada (Lumber I) and that his department, in 1983, had thrown out the case as unfounded. This was obviously not the politically correct answer. Mr. Baldridge asked us to take home the message that, irrespective of the facts, he had no choice but to rule against the Canadian imports to avoid a vicious backlash from a Congress that might impose its own restrictions and, in the process, blow up the trade negotiations.
Rightly or wrongly, Ottawa, over the bitter opposition of its own industry, felt it had no choice but to agree to impose a 15-per-cent export duty on lumber shipments to the United States, thereby keeping the funds in Canada. This was nicknamed Lumber II.
To further accommodate the Americans, the biggest producer, British Columbia, proceeded to raise the timber price it charged to its producers to the point where the United States determined there was no subsidy remaining and exempted those shipments from the export tax. Nonetheless, it insisted on retaining the right to advance approval or veto of any further policy changes by the provincial government, an intrusion on sovereignty that infuriated British Columbians. The province and the B.C. industry led the charge, soon joined by the other major producers, to terminate the agreement on the grounds there was no longer, if there ever was, any basis for these onerous restrictions. When the agreement ended, the groundhog reared its head yet again (Lumber III). The same Commerce Department that had just found there was no subsidy now found that Canadian lumber was subsidized to the tune of 14.5 per cent. The Canadian industry engaged me to advise it in handling this case.
The Canadians used the newly established machinery of the free-trade agreement to arbitrate the dispute, and the panel ruled in Canada’s favour and tossed out the case. After further machinations, the Americans agreed to drop the pretexts and settled for an arrangement to limit imports from Canada to just less than 35 million cubic metres per annum – enough, they believed, to keep U.S. prices up. When that deal expired in 2001, it proved impossible to agree on a replacement. The groundhog soon re-emerged, as Commerce quickly translated the U.S. industry’s claims into new penalty duties, doubling up to just less than 30 per cent. Again, various dispute-settlement panels were convened and ruled yet again that U.S. actions were unfounded. This time, in a new twist, the United States simply refused to comply and announced it was keeping the $5.3-billion (U.S.) it had illegally collected.
At that point, Ottawa asked former top public servant Paul Tellier and me to see what we could do to work something out. Focusing on the real U.S. demands to limit Canada’s share of the U.S. lumber market, we were able to establish the basis of a deal but, in the crunch, the Paul Martin government was not prepared to swallow such a one-sided agreement. Subsequently, Stephen Harper took power and, in 2006, implemented a similar arrangement. It gave the Canadians back most of the duties illegally collected but left the Americans with more than $1-billion in ill-gotten gains. It then imposed a sliding scale of duties rising toward 15 per cent as prices fell in the United States.
In economic terms, this agreement (Lumber IV) was an abomination, rewarding U.S. producers with a licence to gouge home buyers and builders. But from the Canadian perspective, it kept lumber producers in business and provided economic and political stability for 10 profitable years. When the agreement expired in 2015, the U.S. industry balked at its renewal. Following a pre-agreed one-year moratorium on trade actions, they took their case back to their friends at Commerce. It fell to the new Commerce Secretary, Wilbur Ross, to announce the imposition of roughly 20-per-cent duties on most imports from Canada.
When an irate B.C. Premier Christy Clark threatened to retaliate, Mr. Ross complained that this would be inappropriate. He had simply been applying U.S. trade laws. That is, according to the battle-hardened staff at the Commerce Department as repudiated by every independent panel of arbitration over the past 20 years.
Authored by: Gordon Ritchie