Take it or leave it.
The Ontario forest industry is putting on a brave face, but privately they have plenty of misgivings about the new softwood compromise.
It appears the agreement was imposed on the industry, and the industry is in no position to react since the government owns Crown lands.
“The fact that no one wants to comment on it is an indication of the pressure that governments have put on companies,” says one industry leader who wished to remain anonymous.
The companies are in fact starting to push back.
The Ontario Lumber Manufacturers Association and the Ontario Forest Industries Association have filed actions in the U.S. Court of International Trade and the U.S. Court of Appeals in Washington, D.C., to challenge the suspension by both Canada and the U.S. of NAFTA panel proceedings on the softwood lumber issue.
The associations want a North American Free Trade Agreement (NAFTA) panel ruling stating that Canadian softwood lumber is not unfairly subsidized finalized. Both organizations say despite the softwood lumber agreement reached April 27, the industry must still deposit about $40 million every month in countervailing duties.
The seven-year lumber deal calls for the lifting of punitive duties and a return of 80 per cent of the more than $5 billion in duties Canadian companies have paid the United States since 2002.
In exchange a sliding export tax between five and 15 per cent will kick in when the North American lumber price drops below $355 per thousand board feet.
So when the market is bad, producers pay a high tax. When the market is good, there is no tax.
“This means Canadian mills will be shut down in a bad market,” says Russ York, CFO for Buchanan Forest Products Ltd.
“At some point, Canadians will be laid off as a result of this decision.”
After winning several court rulings within the legal frameworks of the NAFTA and the World Trade Organization (WTO), Canada’s neighbours have not honoured the rule of law and moreover, are keeping $1 billion of the duties, York says.
“(That’s) called extortion.”
Producers were included in previous negotiations but this time concerns were raised about having too many voices in the discussion. Meanwhile, the United States negotiators directly consulted with the Coalition for Fair Lumber Imports, the group of American lumber producers that took issue with Canadian softwood imports in the first place.
“If we were part of the negotiating table some of the issues would have come to a halt,” York says. “(This) was a kind of take it or leave it (situation).”
Companies not accepting the deal were told to argue it on their own dime. Meanwhile, duties are still being drawn.
“Might is right and the U.S. has the power,” he says.
Like many industry leaders, York doesn’t like the decision but “you move on and quit your crying. It’s over.”
Companies have to examine the agreement constructively and try to make it work in their favour, he says.
Former Tembec CEO Frank Dottori, who thinks this “transaction was made to put the dispute behind us in order to improve Canada-U.S. relations,” says the deal is just a framework.
“It’s the details that will determine whether this will be a good deal or not,” says the active co-chair of the Free Trade Lumber Council.
Since the accord was announced April 27, the analysis done has been “pretty skinny,” according to Ontario Forest Industries Association (OFIA) president and CEO Jamie Lim.
“There isn’t a lot of detail, which makes analyzing the impact far more difficult,” she says. “The biggest worry for our members is that the framework may not be commercially viable; commercially workable for the industry in Ontario.”
Even so, Lim says her members recognize the agreement has been signed, but in the months ahead the details have to reflect the best interests of the Ontario industry.
“We have to make sure that the Ontario forest industry and the Ontario government has its fingers on that pen.
Members of the association remain extremely concerned about a number of items in the framework that are undefined and unexplained.”
It will be three months before Canada signs a definitive agreement and another three months before duties are given back, so the pressure is still on. Associations across Canada, with the exception of those based in British Columbia, have not offered anything other than conditional support for this agreement, Lim says.
Ontario has experienced double the job loss and double the mills closing of any other province in Canada as a result of the latest softwood trade dispute with the United States.
