Provinces, producers divided on softwood lumber talks

Simmering tensions between B.C. and Quebec, and between large and small Canadian lumber producers, will frame formal Canada-U. S. negotiations to take place in Ottawa next week.

The internal conflict adds to the challenge facing the Trudeau government as it tries to put together a unified approach against an adversary that has often tried to exploit divisions in Canada forestry sector. On Friday, Trade Minister Chrystia Freeland announced that an American negotiating team will be heading to Ottawa to seek ways to avoid a job-killing legal action by the U.S. industry later this year.

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The American industry has for decades alleged that Canadian producers are unfairly subsidized by government, leading to four costly trade battles over 35 years that imposed punitive duties, export taxes and quotas on Canadian exporters.

The last battle, known as Softwood IV, was settled in 2006 when Ottawa cut a deal that limited Canada's access to the U.S. market through a combination of quotas and export taxes.

But that deal has expired and this autumn the U.S. industry will be free to launch a new action unless another "managed trade" deal is reached.

In March, President Barack Obama and Prime Minister Justin Trudeau announced that they'd ordered their top trade officials, U.S. Trade Representative Mike Froman and Freeland, to consider all options to avert a bitter Softwood V conflict and report back in 100 days.

The timeline was intended to lead to progress on the file before the "Three Amigos" summit in Ottawa next month.

One of the challenges Freeland faces is that she will have an almost impossible time pleasing the entire Canadian industry.

The B.C. government and the major West Coast producers - B.C. is responsible for roughly $12 billion of the

$20 billion in wealth generated annually by Canadian forestry firms - are pushing for a negotiated settlement along the lines of the 2006 agreement.

But Quebec's largest company is suggesting it wants to wage a legal fight to obtain true free trade if a negotiated settlement doesn't recognize Quebec's effort to demonstrate that its industry isn't subsidized.

Richard Garneau, CEO of Resolute Forest Products, told a parliamentary committee in Ottawa in April that the previous deal helped the B.C.-led western Canadian industry to the detriment of Quebec and Ontario firms.

West Coast producers weathered the storm by making major acquisitions in the U.S., as well as expanding exports to China, he noted as he argued against a "managed trade" merely to avoid a costly legal battle.

"The willingness to give up free trade to escape litigation is like offering your lunch to the schoolyard bully before he takes it by force," he told MPs.

Garneau's critics privately dismiss that argument, saying losing an egg-salad sandwich and a juice box is better than a broken jaw and missing teeth - which is what tends to happen when Canada clashes with a U.S. system they say is rigged to politically favour its lumber producers.

B.C. Premier Christy Clark openly challenged the wisdom of Resolute's resolve here earlier this week.

"It is beyond comprehension that anyone would think spending four years fighting this out in court is going to be good for jobs in Canada. It's not," she said in an interview just before a meeting with Trudeau.

Another area of tension involves large and small firms. B.C. industry giants like Interfor, Canfor, and West Fraser Timber sharply increased their holdings south of the border after 2006, in part due to the then high Canadian dollar.

Todd Doherty, the Conservative MP from Cariboo-Prince George, asked Interfor chief executive Duncan Davies earlier this month if an export tax imposed on Canadian exporters would actually help his company, given that two-thirds of Interfor's operations are now in the U.S.

Davies, who was appearing before a parliamentary committee on behalf of the B.C. Lumber Trade Council lobby group, replied "not necessarily," saying that depended on the impact of the taxes on U.S. lumber prices.

Trade expert Peter Clark said Friday that Davies was obviously being "coy," since a "managed trade" deal is specifically designed to reduce Canadian supplies and therefore drive up prices in U.S. markets.

Doherty said Friday he understands why major Canadian companies expanded to the U.S., but said he wants the Canadian government to negotiate a deal with an eye on the interests of smaller firms that only operate north of the border.

"There is cause for concern that not all interests are being looked after."

The various tensions make a tough job even more challenging for Freeland, according to Peter Clark.

"She's got to get them all on the same page," he said.

Alex Lawrence, a spokesman for Freeland, said the government is "seeking an agreement with all regions and partners in mind, and we continue to consult extensively with the provinces and industry all across the country."

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