John Ivison: Canada and U.S. drawing closer to ending latest softwood lumber dispute, sources say

The United States may have turned up the heat on the softwood dispute this week by imposing new tariffs on Canadian lumber products, but sources on both sides suggest the key players are coming closer together and there is renewed political will to strike a deal.

Chrystia Freeland, the Canadian global affairs minister, and Wilbur Ross, the U.S. commerce secretary, have spoken frequently in recent days and while both Canadian and U.S. officials say there remain serious hurdles to a deal — not least of which is the approval of their respective lumber industries — there is an appetite to resolve the issue ahead of North American Free Trade Agreement negotiations later this year.

Justin Trudeau hinted at the progress being made when he said in his end of session press conference Tuesday that the two sides are “working towards a deal.”

Logs are stacked at Murray Brothers Lumber Company woodlot in Madawaska, Ont. on Tuesday April 25, 2017.

Sean Kilpatrick/CP

Two weeks ago, Freeland said the two sides were still “far apart.” On Monday, the U.S. Department of Commerce added to Canadian lumber prices a new anti-dumping duty averaging nearly 7 per cent, a response to alleged softwood sales at below-market prices. That followed the imposition in April of tariffs averaging around 20 per cent, countervailing duties for what the U.S. deemed unfair subsidies.

The Canadian side maintained its defiant public rhetoric Monday. In a joint statement, Freeland and natural resources minister Jim Carr said Ottawa will “vigorously defend” the Canadian industry against “unwarranted” trade action.

But behind the scenes, Freeland’s warm personal relationship with Ross, which dates back to her time as a media executive, is said to have created the conditions for a deal.

U.S. demand for softwood used in home flooring, siding and framing exceeds domestic supply. However, the U.S. lumber lobby is intent on reducing Canada’s market share in order to drive up prices. The combined tariffs have already impacted jobs in Canada and the federal government has responded with an $867-million financial aid package.

U.S. Secretary of State Rex Tillerson poses for photographs with Canadian Minister of Foreign Affairs Chrystia Freeland before meeting at the State Department February 8, 2017 in Washington, DC. Forty percent of the United States’ petroleum imports in 2015 came from Canada, more than the next four importers combined.

Chip Somodevilla/Getty Images

Canadian officials note that the lumber dispute is similar to the recent sugar trade spat between the U.S. and Mexico. Earlier this month, Ross imposed a new deal the resolve that dispute in the face of industry objections.

The lumber industry remains a powerful voice but, as with the sugar industry, trade lawyers note that petitioners rarely block government-negotiated settlements.

The Trump administration is keen to resolve both the sugar and lumber disputes before starting full-scale NAFTA negotiations.

Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, told Reuters the administration is probably willing to compromise some industry-specific concerns to help reach its larger NAFTA goal of reducing trade deficits.

Nobody in Ottawa is getting carried away, given the habit of the softwood conflagration to flare up just when it seems to have been extinguished. But they point out that it is Ross, not U.S. trade representative Robert Lighthizer, who has immersed himself in the file.

“It should be the USTR but I think Ross is much closer to the president on a personal and business level,” said Lawrence Herman, a trade lawyer at Herman and Associates.

Canadian officials say Ross has involved himself in the discussions and that more progress has been made in recent months than in the entire time the Obama administration was on the other side of the table. They point to the exemption of three of four Atlantic Canadian provinces from the anti-dumping duties as a possible sign Ross is presenting himself as a willing partner.

The response to any new American offer will rest on whether Canadian lumber producers believe they can get a better deal if they choose to litigate. The U.S. commerce department will make a final determination on the dispute by the end of the year, which will be the point of no return for a negotiated deal.

Nobody in Ottawa is getting carried away, given the habit of the softwood conflagration to flare up just when it seems to have been extinguished

Herman said he sees a “managed trade” solution emerging. “My sense is the only way a deal will emerge is for Canadian industry to accept a cap on market share,” he said.

A political deal could make that more palatable for Canadian producers.

But, as Herman pointed out, a successful conclusion to the latest softwood outbreak might not be good news for Canada in the wider context of NAFTA renegotiation.

“It might make the U.S. less amenable. They could say, ‘We’ve done something for you on softwood — don’t expect any favours on NAFTA.’”

Ross likely appreciates that this is a distracting shakedown, where American companies use trade law to raise prices without fear of being undercut by their more efficient northern rivals. Herman noted that a 1-per-cent market gain at Canada’s expense is worth $60 million to U.S. industry.

But a far bigger prize beckons for the Trump Administration. It would be no surprise if it decides to strike a deal with Canada to clear the decks ahead of the NAFTA negotiations.

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