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Survival of the fittest (3/02)

Northern Ontario lumber producers have fared much better than their counterparts in other regions of the country during Canada's softwood lumber trade dispute with the United States.

Northern Ontario lumber producers have fared much better than their counterparts in other regions of the country during Canada's softwood lumber trade dispute with the United States.

The softwood lumber trade between the two countries is worth $10 billion annually. It is significant to Northern Ontario's economy, where more than $1 billion worth of softwood production is primarily exported to the United States. Dozens of Northern Ontario communities are economically dependent on softwood lumber business.

Buchanan Forest Products, a major softwood lumber producer with 10 mills in northwestern Ontario, has not had layoffs as a result of the dispute. Domtar Inc., which has six softwood mills located in both regions of Northern Ontario, has operated its mills without interruption through the year-long dispute. Both companies have made significant investments in recent years, including Domtar's expenditure of $130 million to refurbish its Ontario and Quebec softwood lumber mills.

Domtar spokesman Marc Perrault says part of the reason that the Northern Ontario softwood lumber mills are operating without shutdowns is, "good management and good inventory control."

Domtar's McChesney mill in Timmins is investing $4.3 million on an edger optimizer and $700,000 for an upgraded planer at the site.

Tembec Inc., with six softwood mills in Northern Ontario, did take some brief downtime late last year at its Kirkland Lake facility, but has operated its other five softwood mills without suspension.

The trade dispute with the Americans began with the expiry of a five-year agreement that governed softwood exports from April 1, 1996 to March 31, 2001. The five-year deal permitted the import of 14.7 billion board feet per year of lumber, without fees. The agreement applied to lumber manufactured in Alberta, British Columbia, Ontario and Quebec. Ontario produces 1.5 billion board feet of softwood lumber annually.

The dispute revolves around U.S. claims that Canadian stumpage fees are too low, and give Canadian sawmills an unfair advantage over their U.S. counterparts.

Three months after the agreement expired, the U.S. Department of Trade imposed a 19.31 per cent provisional duty on softwood lumber imports from Canada. In turn, Canada announced its intention to challenge this move by the Americans. On Dec. 5, 2001, the World Trade Organization's dispute-settlement body established a panel to hear Canada’s complaint. Once the panel is in place it will take six months to complete.

International Trade Minister Pierre Pettigrew appears confident that Canada has a strong case to place before the panel. Ordinarily, if both sides cannot agree on panelists to hear the case, they ask the WTO to appoint them. This time, Pettigrew has asked the WTO to appoint the panelists in an effort to move the process along.

There is a long history of softwood lumber trade disputes between Canada and United States. Each time the disputes are brought before international trade bodies for resolution, the trade bodies side with Canada.

In the previous disputes, Canada cut a last-minute deal and agreed to pay duties for a specified period. Things appear to be different this time. The federal government, provincial governments, and Canadian softwood producers and the associations that represent them are united in their opposition to a managed system of export taxes and quota limitations.

An Ontario Natural Resources Ministry statement on Dec. 7, 2001 stated "Ontario is committed to permanent, unrestricted market access to U. S. softwood lumber markets."

This message was repeated by Dan Newman, minister of northern development and mines, on Dec. 27, 2001.

"The Ontario government is fighting for a return to a system of free trade, where Ontario's softwood lumber manufacturers can compete fairly in the American and international markets," Newman said in a statement.

British Columbia and Quebec softwood lumber producers have suffered the most during the trade dispute where mill shutdowns have adversely impacted thousands of workers.

The British Columbia Trade Council, that represents 95 per cent of the total British Columbia lumber production, 50 per cent of Canadian production and 50 per cent of Canadian lumber exports, believes, "a trade war with the United States would be costly." British Columbia has a tradition of agreeing to pay duties to resolve trade disputes over softwood lumber exports. Their position appears to be hardening against the United States, however, with the imposition of a further anti-dumping duty of 12.58 per cent for a combined duty of 31.88 per cent.

The Free Trade Lumber Council, which includes lumber producers from Ontario and Quebec wants to "fight it out" with the Americans. In a position statement entitled, "Benefits of the FTLC Approach," the council says, "Harmony among Canadians is another benefit that will result from the level playing field for all Canadians producers that free trade will create.

The Softwood Lumber Agreement the FTLC statement says, "conferred an advantage on some producers (those that had quotas) against those in some provinces who did not have access to the U.S. market. Similarly, provinces that were not under a quota system benefited from the restrictions imposed on other provinces. These conditions are divisive and create unhealthy tensions among Canadians, (and are) likely to serve a handful of American protectionist corporations."

The C D Howe Institute, an economic and social policy research institution, waded into the trade dispute with the paper "Softwood Lumber: The Next Phase."

"The case underscores the critical dilemma facing the Canadian industry: whether to fight it through various legal avenues or attempt some pragmatic settlement with the U.S. side," the paper says.

"The independent pursuit of all available legal options would be the best policy mix for Canada."

If a settlement is not reached, it is expected the WTO panel will release its report in September 2002.