Canada’s trade position: Don’t mess with us

Ottawa is urged to threaten to turn off power to the U.S. if it blocks free trade in timber.

“I would remind U.S. policymakers that without Canada’s energy, they had better learn to speak Arabic and read by candlelight.” – Tom Stephens, Former CEO, MacMillan Bloedel Ltd.

Open trade is a two-way street. – Bob Rae, Former Ontario Premier

Canada should be prepared for a long and arduous battle. – Rusty Wood, president, U.S. coalition for Fair Lumber Imports (Natural gas and electricity exports to the U.S. (in millions))

A Canadian strategy is emerging in a looming trade war with the United States: Block free trade in lumber and we’ll turn off your lights.

There was clamouring on both sides of the border Wednesday for Canada to use its energy resources, which feed the vast American appetite for power, to protect its lumber exports to the U.S., which are worth more than $10 billion US a year.

“I would remind U.S. policymakers that without Canada’s energy, they had better learn to speak Arabic and read by candlelig ht,” said Tom Stephens, the Arkansas-born former CEO of MacMillan Bloedel, who was speaking to a forestry conference in Vancouver.

In Washington, former Ontario premier Bob Rae warned the Canadian-American Business Council that blocking Canadian lumber from entering the U.S. could mean that Canada will reciprocate by rejecting the continental energy policy that the United States covets.

“Open trade is a two-way street,” said Rae, who now works as a lawyer representing Canada’s Free Trade Lumber Council.

Stephens told the PricewaterhouseCoopers forestry outlook conference that Canada should never have entered into the Canada-U.S. Softwood Lumber Agreement, which expires March 31. (MacMillan Bloedel was taken over by Oregon-based Weyerhaeuser last year.)

The five-year agreement, which restricts exports from the four largest producing provinces, was negotiated to avoid trade complaints from American producers who claim Canadian lumber is subsidized.

With expiry of the agreement just weeks away, American producers are threatening a new countervail action, raising the spectre of punitive tariffs on Canadian lumber that accounts for a third of the U.S. market.

Canada, which won previous countervail cases, insists there’s no evidence provincial stumpage rates are a subsidy.

“If I were a Canadian — which I’m not — negotiating trade issues with the U.S., I wouldn’t let that need for gas be separated from the issue of lumber, wheat, potatoes or any other commodity that U.S. producers are trying to restrict,” Stephens said.

“My message would be simple: If you want a free market for energy, then we have to have a free market for other commodities that you want also.”

U.S. politicians should recognize that their country depends on Canadian energy imports, from East Coast gas that helps keep the lights on in Boston to B.C. gas and power that kept computers running in California during recent shortages, he said.

“Canada has its hand on the American light switch.” Stephens was picking up on comments last week by B.C. Forests Minister Gordon Wilson, who complained that Americans want easy access to cheap gas and electricity but expect Canadians to be compliant when lumber sales are restricted.

“You can’t on the one hand be talking sweetly to get Canadian energy while on the other hand you are slamming the door on the export of Canadian wood,” Wilson said then.

Wilson stopped short of saying Canada should threaten to turn off the energy tap, but the plain-spoken Stephens wasn’t so bashful.

“If we really want to call a spade a spade, I’d tell the U.S. trade rep that what’s good for the goose is good for the gander. A dollar-for-dollar surcharge on gas that matches any countervailing duty on lumber would make any politician think twice before they try to screw the American homeowner twice — once when they drive up the cost of housing, and second when they force an energy tax and drive up the cost of heating that house.”

Meanwhile, in Washington, D.C., Rae was fighting a rearguard action.

Rae said that a climate of acrimony and distrust has been spawned by the ”tired bromides” of U.S. lumber companies lobbying Washington for protection against Canadian wood products.

“President [George W.] Bush is now making the case for a truly continental approach to energy,” Rae said. ”California’s difficulties with deregulation made British Columbia’s surplus in energy a critical lifeline for the West Coast economy.

“The American economy needs Canadian wood, just as surely as it needs Canadian oil and gas and electricity and much else that we produce in our increasingly integrated world.”

Rae said U.S. lumber companies are relying on old, “demonstrably false myths” to garner support for sweeping protectionist legislation within the U.S. Congress.

“We hear the old line that the provinces subsidize the industry, that log export restraints are unfair, that the federal government and the provinces don’t have environmental laws as strong as the Americans and that this amounts to a subsidy as well. We are told that Canadian railways subsidize logs, and that the Canadian dollar itself is a problem,” Rae said.

“The only problem with these arguments is that they are not true. They are demonstrably false, and no amount of political pressure will make them true.”

However, Rusty Wood, president of the U.S. Coalition for Fair Lumber Imports, countered that the arguments are not only true, but U.S. lumber companies can prove it. In a statement Wednesday, Wood said disgruntled Canadian sawmill operators have been leaking “dirty little secrets” and that Canada should be prepared for a long and arduous battle once the existing softwood lumber deal expires.

New York investment analyst Mark Connelly, a paper and forest products expert at Credit Suisse First Boston, told the PricewaterhouseCoopers conference in Vancouver that investors like quotas because they inflate profits by driving up prices.

“But, realistically, there has been no evidence that the softwood lumber agreement amounts to anything other than an industry subsidy from consumers.”

Connelly said the consensus among U.S. lumber producers has eroded as more American firms own assets here. There’s not much confidence they would finally win a countervail claim.

“The U.S. side is going to lose when we go to court, just like we always lose.”

Ironically, it was Canadians who lost Wednesday when the Canadian International Trade Tribunal decided U.S. corn producers are not causing injury to Canadian farmers.

Canada has been applying duty of $1.58 US per bushel to counter what Canadian farmers argued were unfair farm subsidies provided to U.S. corn farmers who grow corn for both livestock feed and the U.S.’s large-scale production of ethanol as a gasoline additive. Those subsidies, the farmers claimed, have led to massive over-production of corn in the U.S. Midwest.

“Frankly, there is no other way to describe our reaction than shocked at its insensitivity to the plight of western farmers,” said Michael Coates, president of the Manitoba Corn Growers Association “The minister of agriculture has no new money for farmers — and now it seems that a law that works for multi-billion-dollar steel producers in the East, is useless to farmers in the West.

“We are just sitting ducks for Washington and have nowhere to go for help.”