Dollar looms as stumbling block in Canada-U.S. softwood negotiations

Dollar looms as stumbling block in Canada-U.S. softwood negotiations

The Canadian dollar’s nosedive has disrupted North American lumber markets to the point that Canada is expected to face currency-induced pressure to make concessions in the next softwood lumber agreement with the United States.

Henry Spelter, a leading analyst at the U.S. consulting firm Forest Economic Advisors, said the effect of currency changes is likely to influence any negotiations. Spelter, who is one of North America’s most respected lumber consultants, said U.S. sawmillers are now at a disadvantage in their own market because of the collapse of the Canadian dollar.

“This world we are living in – this nightmarish world where you have to focus on every nuance and accent on the part of central bankers and how they are going to control the exchange rate – is having a huge impact on business profitability. It obviously has disadvantaged the U.S. producers of lumber and greatly advantaged Canadian producers of lumber. This development is totally independent from everything else.”

With the October 12 expiry of the last softwood lumber agreement, Canada and the United States entered a one-year standstill during which the U.S. agreed that it would not launch a round of duties on Canadian lumber exports.

Three months into that standstill, both sides have begun informal discussions but Canada’s stated goal of a new agreement that’s identical to the old one is officially dead.

Both B.C. Forests Minister Steve Thomson and Council of Forest Industries president Susan Yurkovich said January 13 that British Columbia no longer expects to simply renew the old agreement. Thomson and Yurkovich met with Canada’s international trade minister, Chrystia Freeland, earlier that week to exchange views on the softwood file.

“I think the Canadian industry recognizes that this won’t be a straight rollover or renewal of the existing agreement in its current form,” Thomson said in an interview after the meeting. “We will need to negotiate. The key point is the agreement will have to be one that works for the Canadian and B.C. industry. It won’t be an agreement at any cost. And that will have to be part of the negotiations.

“If we aren’t able to achieve it we are prepared to defend our market-based forest policies should the U.S. choose to bring a legal challenge against Canada and B.C.”

The discussions now underway are not formal negotiations. Rather, Thomson said, they are to develop the principles for negotiation. Asked if currency rates would be included, he said a number of elements will be on the table.

“We know there is interest in caps, interest in trigger mechanisms, rates, surge protection. All of those kinds of factors will be part of the discussions.”

Yurkovich said the end of the agreement on October 12 also ended the opportunity for a straight rollover into a new agreement.

“In discussions we will be looking at how we could find a new way forward in an agreement, and if the U.S. and Canada are looking for things to modify about this agreement, what would they be?”

She said although currency fluctuations are making Canadian exports more cost-effective in the U.S. market, there is no evidence that Canada is increasing its market share as a result.

U.S. companies would view an increase in Canada’s share of their domestic market as justification for launching trade action if both countries are unable to conclude an agreement once the one-year standstill ends next October.

B.C. is Canada’s largest softwood lumber producer, and the U.S. closely monitors what happens within this province. The most recent Statistics Canada data shows that as of November 30, B.C. lumber shipments to the U.S. have increased by 7% year-over-year. U.S. lumber consumption data for the year – which will provide a benchmark on market share – will not be released until March.

A 7% increase in exports is modest and in line with the gradual recovery of the U.S. housing market, said David Elstone, executive director of the Truck Loggers Association.

He said B.C. has diversified its markets and is continuing to ship large volumes to China despite a weaker market there. Further, he said, mills are unable to increase shipments to the U.S. even if they wanted to, because of constraints imposed by the mountain pine beetle on the province’s timber supply.

“We physically can’t do it,” he said. (external - login to view)
Canadian softwood lumber executives will meet this week with America's trade ambassador as they brace for the prospect of U.S. tariffs that they say could result in mill closures and layoffs.U.S. Trade Representative Michael Froman will speak with the Canadian lumber industry in Toronto on Wednesday, days before U.S. producers could start petitioning Washington to impose new duties on Canadian softwood.

"I think it's an opportunity to have direct conversations with an absence of filters and I think that's a good thing," said Susan Yurkovich, president of the B.C. Lumber Trade Council.

She remains hopeful that a deal can be reached to avoid a protracted and costly trade war.

Following a decade of relative stability, the expiry of the 2006 softwood lumber agreement and a one-year standstill period on Oct. 12 is expected to push the U.S. to begin the process of imposing tariffs on Canadian lumber imports.

Few industry observers expect the Americans will budge from their quest for quotas to reduce Canada's share of the U.S. softwood lumber market.

Canada has traditionally accounted for about one-third of the U.S. lumber market, but the U.S. is rumoured to want that to gradually decrease to 22 per cent, said Richard Garneau, CEO of Quebec-based Resolute Forest Products.

"It will be impossible for Canada to accept that," he said.

The possibility of new duties is worrying workers and small rural communities that rely on the forestry sector, said Garneau.

"Obviously, it's going to affect less the urban centres, but I can tell you that rural Canada is going to suffer a lot," he said.

After the expiry of the previous softwood lumber deal in 1996, the U.S. Department of Commerce imposed a 32 per cent export duty, which was reduced to about 27 per cent in 2002 and remained at that level until a new agreement was reached four years later.

Garneau called on Ottawa to provide Canadian lumber producers loan guarantees and funding to offset anticipated legal costs and duties.

"We need assistance to defend ourselves against these abusive methods the U.S. has on trade."

The United Steelworkers union, which represents about 40,000 forestry workers in Canada, said Ottawa should also provide funding to communities, as it did between 2002 and 2005, so workers can transition themselves to other jobs if mills shut down.

Bob Matters, chairman of the union's wood council, said the number of jobs at risk will vary across the country and depend on several factors, including the amount of duties imposed and duration of the trade dispute.

"Most of the players can survive in the short-term," he said. "But if this thing drags out like last time, then it's anybody's guess."

Federal International Trade Minister Chrystia Freeland said the government is prepared to continue negotiations, adding that it's not a foregone conclusion U.S. duties will be charged on Canadian softwood.

"We want and are working towards a good deal for Canadians, but not just any deal," Freeland said last week.

"If we fail to achieve a deal, which I very much hope will not be the case but is certainly a possibility, and if duties are imposed, we are prepared to litigate."

She warned it's been difficult to resolve lumber disputes in the past, and it is even more challenging because of the heightened protectionist environment in the midst of the U.S. presidential election.

U.S. trade ambassador to meet with Canadian lumber execs before softwood deadline | The Chronicle Herald (external - login to view)
TPP. Asia doesn't want Soviet Siberian unsustainable harvested wood.

Logging is poised to make a come back
Quote: Originally Posted by petrosView Post

TPP. Asia doesn't want Soviet Siberian unsustainable harvested wood.

Logging is poised to make a come back

Yup lots of lumber being shipped to Asia these days .
The problem the US faces is that it does not have the timber supply to be sustainable without imports. THe majority of their timber comes from private lands.
It's really an easy solution. Canada starts exporting more to China and other Asian countries and developing nations and stops selling any wood to the US. See what kind of deal they are willing to negotiate after a 30% reduction in their wood supply for a year or 2.

We need to enter negotiations with in thing at the forefront. We have what they want and have other customers who will take what they don't so have the power position in bargaining. If they don't want to pay they don't get to play.

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