Canada to Cut Back on Lumber Exports to U.S.

Canada agreed Friday to reduce exports of softwood lumber to the United States, ending a 14-year dispute in which U.S. officials argued that Canadian lumber producers unfairly damaged their American counterparts by flooding the U.S. market with government-subsidized wood.

The settlement, which has not been released in detail, requires Canada to pay escalating tariffs if it exceeds quotas on the amount of lumber shipped to the United States.

U.S. Trade Representative Mickey Kantor said the five-year pact, which goes into effect April 1, will provide “necessary relief and the level playing field that U.S. companies and workers have fought for.”

Canadian officials have disputed the U.S. view that its lumber producers received government help.

The agreement will boost the U.S. timber industry and undoubtedly will add fuel to arguments on both sides of a national debate over trade that has raged since approval of the 1993 North American Free Trade Agreement among the United States, Canada and Mexico.

Supporters of NAFTA and similar accords to reduce trade barriers can cite the lumber settlement as an example of how the U.S. government can selectively intervene to halt unfair practices even in the climate of open trade.

Others, however, can point to the settlement as evidence that other nations are trying to take advantage of the U.S. market and must be fought aggressively.

NAFTA governs much of trade involving the three nations, including tariff levels, but the central issue in the lumber dispute involved allegations of subsidies, which are not dealt with specifically under the trade agreement.

Despite the decline in the volume of cheaper imported lumber, Kantor said, American home builders and buyers will see a “negligible, if any” effect on prices of new houses. In recent years, home builders have used less wood and more fabricated metals in housing construction.

However, the reduction in the amount of lower-priced Canadian wood sold in the United States will remove some pressure for U.S. producers to keep prices low. Also, if Canada exceeds its quotas and tariffs are imposed on its exports, contractors here will pay more for that wood.

Should Canada fail to live up to the terms of the agreement, Kantor said, the United States would turn to its trade laws--code language for beginning steps to impose trade sanctions.

Attempts to settle the dispute had been roiled for 14 years by acrimonious political debate, litigation and

counterlitigation and tariffs. Sporadic negotiations occurred over the last 14 months among officials from Washington and Ottawa and Canadian provincial officials seeking to protect an industry that is of considerable economic importance in British Columbia and Quebec.

The political sensitivity on the Canadian side of the border was reflected earlier in the week by the revelation of discord between Quebec officials and the Canadian government over any restriction in exports, which a senior Quebec aid said would set an “extremely dangerous” precedent.

The search for a solution, Kantor said, was the highest priority in the U.S. relationship with Canada.

The United States’ complaint was built around the belief that unfair Canadian government subsidies to lumber producers made it possible for them to flood the U.S. market with logs and cut wood priced below timber cut in this country.

Under the agreement, British Columbia, the largest lumber-exporting province, will tax its exports. Other provinces will increase the prices that logging companies pay for trees cut on government-owned land. Both measures should raise the cost of the Canadian wood sold in the United States.

Kantor said 60% of the U.S. imports of Canadian lumber come from British Columbia. The agreement would cut that amount by 14%, he said. Imports from Quebec would be reduced by 11%, he said.

As described by a senior U.S. trade official, the United States gains a reduction of imports competing with its own lumber industry and Canada gains the assurance that “there will not be a return to another round of litigation.”

Kantor said that as the dispute dragged on, U.S. mills continued closing, with many lost in the Pacific Northwest since 1993. Since November 1991, he said, the Canadian share of the U.S. market had grown from 26% to 37%, a surge that he called “unprecedented.” U.S. mills employ about 140,000 workers, he said.