Canada and the United States are about to sign off on an agreement bringing to an end the punitive 28-per-cent tariffs on Canadian lumber shipped into the United States. There will be widespread relief that the tariffs will be coming off, but loggers, sawmill workers and forest-dependent communities will soon find that the news is not nearly as good as it sounds. Those who believe that the United States intends to use trade agreements to take away Canada's sovereign control over policy in this country will find lots of ammunition in this deal to support them.
In place of the punitive tariffs, quotas will be placed on shipments of Canadian lumber and value-added products into the United States. The quotas will mean an immediate 8-per-cent to 10-per-cent cut in exports of lumber products. From now on, every mill in Canada will be shipping 10-per-cent less than it has in the past. To get there, every company will have to cut back production and lay off workers. New and expanding mills will have little chance of ever getting into U.S. markets. It is estimated that as many as 15,000 jobs will be lost in British Columbia, and an equal number across the rest of Canada, as the impact of these quotas is felt.
True, the duties will be gone, for five years at least, but at a large cost. The big winner is the United States. It got pretty much everything it wanted. For the past 21/2 years, the U.S. lumber industry has been demanding that Washington protect it from competition from higher-quality Canadian lumber, and the administration has obliged. It imposed incredibly high tariffs on Canadian lumber, and said they would remain unless Canada agreed to this deal. The United States got what it wanted by playing hardball. Canada was powerless to do anything about it, a failure of its own making.
U.S. lumber producers will see a large slice of Canadian lumber disappear from markets in their country. That will boost their sales and prices at the expense of Canadian producers. Further, they will get to pocket almost 50 per cent of the illegal duties collected to date on Canadian lumber. Perhaps as important, their government will now virtually dictate Canadian forest policy. The quotas will stay on until the major provinces make changes in forest policy acceptable to the United States. No matter what changes are made, the quotas will stay on for at least three years, but few expect the United States to agree to any lifting of quotas for a very long time.
According to the Canadian and B.C. governments, they had no choice but to accept the deal. Nothing less, they say, could possibly persuade the United States to remove the duties.
Many forest companies have agreed reluctantly to go along. A year ago, most were confident that they would win the challenges to the duties before NAFTA and the WTO. And, by and large, those cases have been won by Canada. The United States says, according to Canada, that it will not obey the rulings. International trade law, it seems, is not to stand in the way of protection for the U.S. lumber industry. Canada has acquiesced.
The real problem from the outset has been flawed negotiations. For instance, B.C. gave away its bargaining power by agreeing to all of the U.S. demands for policy changes before serious negotiations even started. Some time ago, Canada agreed to U.S. demands for a continental-energy policy, without any consideration of the way that would weaken its ability to negotiate on lumber. It has become clear to the United States that Canada has no stomach for fighting and winning in NAFTA and the WTO.
Put simply, Canada failed to use the leverage available to it to force a more acceptable deal. It failed to capitalize on its opportunities to work from a position of strength.
Contrast that to the case of steel, where the Europeans promised to fight punitive U.S. tariffs on steel with punishing duties and quotas of their own. The United States backed off in the face of those threats, proving that tough bargaining works.
There will be those in the industry who will want to fight to get a better deal. They will be supported by leaders and workers in forestry communities. They have no chance of being heard by governments, much less of getting anything changed.
Canada and B.C. have decided to throw in the towel and let the United States have what it wants. Much of what they had to bargain with was given away ahead of time, leaving Canada in a very weak position. Out of sheer incompetence, no one took the time to think through a strategy that would extract concessions from the United States on the way to a deal.
The United States has bargained hard, making all kinds of threats. Canada has not wanted to play by the same rules. There is now a great fear that if Canada refuses to go along, the United States will hold out for many more months, and Canada's failures will become more evident and more difficult to explain to increasingly skeptical observers. A new prime minister is coming in, and he has promised better relations with the United States. There is, thus, political pressure to accept the deal now, before his watch begins, and avoid an ugly and difficult fight that would undermine the appearance of better relations.
Canada has failed in these negotiations and just wants to get the issue out of the way. What better way than to have the tariffs removed, and to claim victory? So what if the cost is unacceptably high? The issue is far too complicated for most people to understand. Those who oppose the deal can be ignored.
The dispute played out exactly as the United States wanted. It knew that if it set the tariffs high enough from the start and talked tough (even though it had no case), Canada would not be capable of standing up to it. Bully tactics worked. Thousands of workers and hundreds of communities will pay a heavy price. Unfortunately for them, that is now their problem, and they can expect little help from governments.
Doug McArthur, a professor of public policy at Simon Fraser University in Vancouver, is a former deputy minister to the premier of British Columbia. He was involved in negotiating the 1996 Canada-U.S. softwood lumber agreement.
