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The Softwood Hard Sell

Deal a bitter pill for some B.C. lumber firms, especially 'remanufacturers.'

By Bryan Zandberg 13 Oct 2006 | TheTyee.ca

Bryan Zandberg is the assistant editor of The Tyee.

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Harper and Emerson, a former Canfor CEO

Stephen Harper claimed the deal to end the softwood lumber dispute "quickly won support" in provinces like British Columbia. However, the agreement, which came into effect yesterday, is bitterly criticized by some industry executives in B.C., especially those in the business of turning raw logs into the kinds of products that also create more jobs.

Comments on the record by execs have been scarce. One central Interior reporter, who didn't want to be named, used the words "unusually tough" to describe getting managers and company presidents to comment publicly on the deal.

But some timber execs have unburdened themselves to union members, claims Terry Tate, a financial secretary with the United Steelworkers in Williams Lake. "They're telling us behind closed doors that this deal is horrible."

And the NDP critic for international trade, Peter Julian, says the industry wasn't just muzzled, it was "bullied" by a Conservative government intent on pushing through the deal.

"It's been the most intense bullying that I've certainly seen from government," said Julian, whose Burnaby-New Westminster riding is home to lumber mills.

No stampede

The Canadian government was said to need 95 per cent of lumber producers on side to make the deal go through. However, as a form of silent protest, Julian said many companies refused to send in documents ending legal appeals to the $5 billion in duties imposed by American customs since the last softwood lumber agreement expired.

Julian called it "a stand off," as did industry analyst Don Whiteley writing in the Vancouver Sun.

Dick Harris, Conservative MP for Cariboo-Prince George, told a different story. The deal is "only stalling because there's some legal wording and changes that have to be made to the American side, not ours," he told The Tyee earlier this week. "We're pretty much done with the thing and it's been accepted by the industry and the provinces."

But David Gray, vice-president of the B.C.-based Mill and Timber Company, said otherwise.

"[Ottawa] thought there was going to be a grateful industry stampeding to accept this wonderful proposal," he said. "Well, guess what? They didn't get it."

The agreement went into effect thanks to some late revisions that Trade Minister David Emerson says allow remaining Canadian law suits to continue, and Julian says have the opposite effect, enabling the Canadian government to unilaterally quash the suits.

Tough on family-owned mills

The new Softwood Lumber Agreement, announced by the Conservatives last April, caps Canada's portion of the U.S. lumber market at 34 per cent, imposes a domestic tax of 15 to 22.5 per cent on exports to the U.S., and will return roughly four of the $5 billion in duties collected by U.S. customs since 2002.

Critics of the deal, including some Canadian lumber producers, say it gives away too much, considering that successive NAFTA panel decisions ruled in Canada's favour, dismissing American claims that Canadian lumber was unfairly subsidized.

The deal will have far-reaching ramifications for everyone in the industry, but many say smaller companies and B.C.'s value-added industry will be the hardest hit.

Michael Wigen of Wynndel Box & Lumber Company in Creston, B.C. has been an outspoken critic of the deal. He said that operating under the new agreement will be precarious for the family-owned mills that compose the Interior Lumber Manufacturers' Association.

"We're losing our ass at 11 per cent," he said of the current duty. "[Now] we're going to go to 15 or 22."

To be reimbursed some of the duties he paid during the last five years, Wigen first has to sign off litigation to get back all the money he paid, plus agree to 78 cents on the dollar instead. Then he'll have to pay a 20 per cent tax to the Canadian government.

"We've been denied the use of that money for years, and we've lost 30 per cent on currency exchange. Now we're to lose another 20 per cent," he complained, urging the government to "let this deal die and let us go back to litigating."

Russ Cameron, president of the Independent Lumber Remanufacturers Association, said that of the 120 member companies in his association, 76 filed legal cases at the Court of International Trade. Of them, 24 have withdrawn, while 52 had not.

"And of those 24, there's probably about a dozen that have done that willingly," said Cameron, who claimed the government put pressure on firms to get on board. "The other guys [withdrew legal claims] because they were a little worried with all these phone calls from government."

'More value added, higher penalty'

Cameron said the duties have been especially hard on Canadian makers of products such as heavy timbers, flooring, shakes and shingles.

Because such value-added products are more labour-intensive and expensive to create, they sell at a higher price. A higher price meant higher duties at the border, and after years of trade wrangling, many remanufacturers are in financial dire straits.

Cameron doesn't see value-added producers faring much better under the Softwood Lumber Agreement.

"This deal basically institutionalizes this tax on us," he said.

"In effect we've been paying 45 per cent," he said, "and that is why the Canadian remanufacturing industry is on its ass: we're down 30 per cent in sales, and employment is down 25 per cent."

"The more value you add in Canada, the higher the penalty for doing so," said Cameron.

Lee Coonfer, a public affairs manager for Canfor -- a company that has been a consistent proponent of the deal -- doesn't agree that fighting the protectionist lumber lobby in the U.S. is worth doing forever.

"Litigation is not the way to develop trade relationships. And let's be honest: the U.S. has a very long memory. To think that they wouldn't come back at us any harder in the next round, we'd be kidding ourselves."

Canfor a backer

Other proponents of the deal have pointed out that it guarantees access to markets south of the border, even during downturns like the one presently looming over the housing market.

Gray, who regards the deal as "the acme of botched managed trade," argued that it isn't simply litigation being signed away, but the validity of the past decisions that ruled in favour of Canada. To drop the legal battle, he said, was to open the doors for the same U.S. accusations and measures in the future.

"My view is I know they are going to screw us again, but at least make it different," he said. "At least it will be a new experience, it won't be the same old shit."

Minister Emerson, who spearheaded the deal, was CEO of Canfor before winning a Vancouver seat in Parliament as a Liberal and then changing allegiance to the Conservatives after the last election.

Canfor is one of the companies that agrees with the Conservatives that the reprieve from legal wrangling will be good for business.

"It at least establishes certainty in our industry, for the first time in a long time, which is crucial for us to plan our business and grow our business," said Coonfer.

'Big stick'

How those business models will adjust to the new rules is anybody's guess, but Tate of the United Steelworkers said that the bigger companies are "looking to recoup [the costs of the Softwood Lumber Agreement] on the backs of the workers and the communities."

"We've already had meetings with employers, who are telling us that when this tax comes in...we're going to have to tighten our belts," he said.

He's concerned the deal could clear the way for a lot more exporting of raw logs instead of processing the wood in Canadian factories, which creates more jobs on this side of the border.

"Mark me, I know it's coming; [the mills] are going to ask for an exemption to export either [rough lumber] or raw logs in order to subsidize their manufacturing plants."

Gray, who charged the Conservatives have secured the deal by brandishing "the big stick" over the heads of the softwood industry, vowed ongoing opposition to the agreement.

"Everybody is afraid that there are going to be recriminations against them. I guess I'm old enough and grumpy enough that, frankly, if they want to take it out on me, my solution is to step down from my company's responsibilities and continue this in another way."

Bryan Zandberg is on staff of The Tyee.

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