'Riskier than doing nothing': Softwood lumber package may hurt Canada's case with U.S.

When the federal government sets out to bolster a sectoralready under fire for getting too much of a boost, it has to tread carefully.

Last week, Natural Resources Minister Jim Carr tried to explain how his softwood lumber action plan was an "appropriate response" to U.S. countervailing duties.

Right oncue, the U.S. lobby driving the new levies called ita "new government subsidy" that"further tilts the trade scale."

The upshot? Don't expect a softwood lumber dealanytime soon. Therenegotiation of the North American Free Trade Agreement (NAFTA) may getharder too.

• Ottawa announces $867M in financial assistance for softwood lumber industry

Coming forward with an assistance package is "riskier than doing nothing," said Meredith Lilly,a former trade adviser to Stephen Harperwho'snow at Carleton University.

But after both Quebec and Ontario called for federal help, ministers were compelled to do something. "They're kind of in a difficult position," she said.

Carr said last week the package would "stand the test of scrutiny."

Lilly doesn't think it's a subsidy that's vulnerable to trade litigation. The loans and loan guarantees, for example, are"on commercial terms."

But legal arguments maybetrumped by the optics of a nearly $1 billion bailout. From the political perspective, "there's no reason the U.S. wouldn't attempt to fold this in to part of their arguments," she said.

Ottawa announces $867M in financial assistance for softwood lumber industry

7 years ago

Duration 6:33

Minister of Natural Resources Jim Carr discusses the loan package and the state of the Canada-U.S. softwood lumber dispute

On the other hand,"when developing a package that is safe from a legal perspective, what you might be announcing in the end might be a bit more sizzle than steak," she said.

That makesit hard to satisfy the expectations of the companies and workers you're trying to keep afloat until new markets can be found.

'Ransom money'

Former lumber council executive and trade diplomat Carl Grenier wanted the federal government to step up quickly.

In the last softwood lumber dispute, Paul Martin's Liberal government came to the table in 2005 with too little, too late, he said. The industry was already on its knees and desperate to geta deal.

An earlier package this timetells the U.S. "if you want to play the same game again, we will support the industry,and so you won't get to bring us back to the table quickly [and]do a quick and dirty deal," he said.

It's also a sign the federal government isn't terribly confident of a quick resolution to the dispute, whatever optimismministers may clingtoin public. If things were about to be fixed, they wouldn't need an action plan.

A long dispute letsthe U.S. collectmore duties. In the 2006 settlement,$500 million of the levieson Canadian exports ended upinthe pockets of U.S. lumber producers.

"The appetite for this ransom money is still there with the [U.S. lumber] coalition," he said. "Basically the U.S. has learned to game the system."

Softwood lumber as a commodity doesn't currently fall under theNAFTAagreement,but disputes over softwood lumber duties can be appealed to a NAFTA tribunal.

Grenier warns against trying to fold softwood lumber into the upcoming renegotiation.

"We'll lose every time," he said. There's no pleasing the U.S. lobby.

On top of that, Canada shouldn't agree to get into a discussion about the rules for settlingdisputes while one's underway, he said.

Eventually, Canada is expected to appeal the latest duties. If it wins under aNAFTAarbitration process, Canada getsits money back.

Canada won last time, too. But itsdecision to accept a settlement anyway undermined that victory.

Now the U.S. wants to renegotiate or even do away with NAFTA'sChapter 19 process.

"This is something Canada should resist at all costs," Grenier said.

Canada could still appeal to the World Trade Organization, but winning the argument beforea WTO paneldoesn't return the duties paid.

'Timing seems off'

Canadian and American trade lawyer Mark Warner sees the packageas an "inviting target" forAmericans to challenge as an export subsidy.

Regardless of what the WTO may eventually rule, coming out with this package now"seems overlyaggressive," he said, if Foreign Affairs MinisterChrystiaFreelandwantsto settle the softwood lumber file before diving intoNAFTA.

"The timing seems off to me," he wrote to CBC News, saying Freeland seems "remarkably tone deaf" about how asymmetrical the trade relationship is between the two countries.

Brett House, the deputy chief economist at Scotiabank,thinks the package is thoughtful and doesn't runafoul of therules.

Helping displaced workers or finding new markets is outside the scope of litigation. As for government-backedloans, today'slow interest ratesmeanany discount is likely toosmall to bematerial, he said.

The greatestvalue of the loans may bewho's eligible: large producersnamed in the U.S. investigationmay notneed them, but more marginal companies might.

"This potentially lowers the playing field a bit internally for smaller producers," Housesaid. "The little guys are employing more people, almost more certainly, because they're not using technology that's as labour-saving as the big guys."

Turningeligibility into a trade complaint would be "perverse,"he said. The U.S. caused the problems in the first place.

The way duties were levied with some producers paying more than others isthe latest U.S. attemptto divide Canada'sindustry.

• Forestry changes in 2014 made New Brunswick lumber a U.S. target

More anti-dumping duties are expected June 23.

"It's every man for himself," former lumber council executive Grenier said, with provinces each turning totheir own advisors.

"U.S. authorities don't care a whit about the way the forests are managed," he said. "They only care about the possibility of kicking Canadian exporters of softwood lumber out of the market when prices are low."