The summer of 2005 witnessed yet another episode in the long-running Canada-US softwood lumber soap opera. The US decision in August to ignore a North American Free Trade Agreement (NAFTA) panel finding led to a predictable media feeding frenzy, fuelled by expressions of out- rage by federal and provincial politicians, indignation by lum- ber barons, and surprise at the Canadian reaction by US protagonists. Hyperbole has become a routine feature of this continuing saga, as have contributions from Canada’s profes- sional anti-Americans. More sober observers added their own bleak assessments of the future of Canada-US relations and warned that the NAFTA stood in danger of being sacrificed on the altar of short-term American political expediency.

They may be right. The Bush administration’s decision to ignore a ruling from an Extraordinary Challenge Committee was both egregious and offensive. Nevertheless, in addressing this issue, it would be helpful to maintain a sense of proportion.

Softwood lumber has clearly reached an impasse, and although it may have been therapeutic to vent our collec- tive spleen, we now need to look at how best to resolve this problem. There is too much at stake for the 320 million peo- ple who benefit from the fact that Canada and the United States have succeeded in creating a prosperous, well- functioning, integrated bilateral economy.

As business economist Stephen Blank puts it: ”œwe don’t sell cars to each other; we build them together.” As such, we cannot afford to let the two softwood lumber industries, and their political supporters, hold the further evolution of a mutually beneficial North American economy hostage to their narrow, self-serving interests. This time, more than softwood lumber is at stake. It is time for some fresh think- ing and a more rational approach.

How did the two governments get into this mess, and how do they get out? A useful start is to understand the nature of the problem. First, Canada is blessed with abun- dant supplies of readily accessible softwood lumber, 70 per- cent or more of which is exported. It is used primarily in the housing industry, and only the United States is as reliant on wood-frame housing as Canada. Marketing efforts to pro- mote wood-frame housing in Europe, Japan, and elsewhere have met with, at best, limited success. Consequently, the United States is the only serious market for Canada’s soft- wood lumber, and the US softwood lumber industry is capa- ble of supplying only 50 to 60 percent of US demand.

Second, Canada and the United States have different ways of managing their forestry resources. With the exception of the Maritimes, the provinces own Canadian forests, and use various ways to calculate stumpage, the fees paid by lumber companies for the right to harvest the trees. These harvesting rights are often embedded in long-term tenure arrangements between the province and the industry, particularly in British Columbia. Stumpage rates may be adjusted to reflect the final price realized on the lumber, allowing the lumber companies and the province to share the risk of market fluctuations.

Additionally, provincial ownership adds political considerations to the mix used in determining stumpage rates. In the United States, on the other hand, and to a large extent in the Maritimes, the forests are for the most part privately owned, and market forces generally determine the price of the timber. As a result, US buyers and sellers must make market-based judg- ments and live with them. Finally, some provinces retain controls on log exports, ensuring sawmill operations in Canada, but also potentially reduc- ing the value of logs in Canada.

Third, both Canadian and US law equip private interests with powerful trade remedy tools ”” anti-dumping and countervailing duties ”” to fend off unwelcome foreign competition. Over time, the laws have evolved to narrow the discretion available to governments in applying such duties. Although the use of these tools is governed by NAFTA and the World Trade Organization (WTO), they are open to abuse. To put it in its simplest terms, determining dump- ing and subsidization is not a neutral, technical process but a highly abstruse black art that operates at the margin of what is, and what is not, permissible under the WTO rules. Once an industry has launched a complaint, the investi- gating officials are likely to find dump- ing and/or subsidization; the only mystery is its extent. In order to keep matters from getting out of hand, the WTO rules impose a bewildering array of procedural and substantive hurdles and require that the complaining industry demonstrate that imports of the subsi- dized or dumped goods cause or threat- en material injury. In addition, NAFTA’s chapter 19 allows affected parties to challenge agency decisions by providing for binational panels to determine whether domestic rules and procedures were properly applied. In sum, trade remedy laws are a matter of politics and rules, not of economics.

Fourth, dispute settlement is a use- ful but limited instrument for resolv- ing trade disputes. It provides a valuable service in dispelling the fog of claims and counterclaims by establish- ing the facts and determining the scope of the applicable rules, but no procedure can yield a definitive solu- tion when domestic interests are entrenched and enjoy substantial political support. Dispute settlement, either in the NAFTA or the WTO, may look like a domestic court, but the par- ties are sovereign states that cannot be compelled to act in ways counter to their perceived interests.

It is equally useful to dispel some of the myths that have grown up around this dispute. One such myth is that the provinces do not subsidize their softwood lumber ”” the revenues from stumpage fees exceed the costs of managing the forests ”” and thus the United States has no right to apply countervailing duties to it.

A WTO finding that Canadian stumpage practices can constitute a ben- efit within the meaning of the WTO rules effectively blew this particular myth away; the only remaining issue is how to calculate the amount of subsidy. A relat- ed myth is that every time Canada has taken a lumber issue to a WTO or NAFTA panel, Canada’s position has been sus- tained. The truth is more ambiguous: Canada’s position has prevailed on some important points, while the US position has been sustained on others.

A further myth is that the US action is an affront to Canada’s sovereign right to manage the forests as it sees fit with- out fear or hindrance from foreign pow- ers. This assertion would have meaning if the right to stumpage went together with the right to export to the United States. Canada has rights to export to the United States under both the WTO and the NAFTA, but subject to their rules, which include a US right to apply antidumping and countervailing duties if the necessary conditions can be demonstrated. Related to this myth is the belief that the United States is a serial abuser of anti-dumping and counter- vailing duty procedures. Perhaps, but the nature of these regimes invites abuse, a fact with which Canadian offi- cials are as familiar as US officials.

It is also irrelevant to complain that US lumber companies benefit from subsidies or may engage in sharp pricing practices. The trade remedy laws exist to challenge foreign com- petitors, not domestic practices. The extent to which US lumber companies are subsidized or engage in price dis- crimination has no bearing on this case. US lumber companies are almost exclusively focused on the US market and are not interested in selling on the Canadian market, whereas many Canadian companies exist largely to service the US market. Thus Canadian firms experience the lash of trade remedies while US firms do not.

Finally, the impact of the soft- wood case on Canadian lives and com- munities should not be exaggerated. The main victims have been US con- sumers, who have paid as much as $3 billion a year more for housing and other lumber-based products.

Despite nearly a quarter century of intense litigation, Canada continues to supply a third or more of a growing US market, with exports now worth more than $10 billion a year, or about 2.5 percent of Canadian exports. Canadian firms have adjusted and become leaner and meaner, the last thing their US competitors wanted.

There are problems in the forestry industry, but they have more to do with the pulp and paper sector, lack of invest- ment in downstream activities, more stringent environmental requirements, Aboriginal land-claim issues, and infestations of mountain pine beetles than with sales of lumber to the US market. The bilateral trade issue boils down to protecting profit margins for the major suppliers on both sides of the border and fees for the myriad of lawyers engaged on this issue.

Americans also freely dis- pense red herrings. US officials like to point out that trade remedies are a normal part of US commercial life, that most trade is trouble free, and that we need to isolate this par- ticular problem. Fair enough, but isolating this problem does not include turning a blind eye to abuses of the system and willfully ignoring panel deci- sions that are politically incon- venient. Similarly, US officials try to project an image of a country whose firms are neither subsi- dized nor engaged in dumping: the United States is the world’s preemi- nent free and fair trader.

The fact that US firms are less dependent on foreign markets and thus less vulnerable to foreign trade remedy actions, however, hardly trans- lates into proof of fair trade. Dumping, that is, selling in an export market at a lower price than in the home market, is a normal business practice that any competitive firm is likely to engage in at one time or another, and subsidies ”” from agricultural support payments to cost-plus defence contracts ”” are as American as apple pie. Under WTO rules, neither is illegal; rather, they give rise to the right to impose offset- ting duties if imported dumped and subsidized goods can be shown to have caused or threaten to cause material injury to domestic producers.

US officials also like to believe that the United States does not violate its trade obligations. In general, the United States does take its trade obli- gations seriously, but not always.

History attests to a number of instances of a US administration finding it politically inconvenient to confront the Congress on difficult files, from the noto- rious DISC case in the 1970s to the Byrd amendment of today. The answers to these problems may lie in negotiations, but foreign countries should not have to pay twice for their access to the US mar- ket; trade harassment aided and abetted by US law and a compliant administra- tion and Congress should not be the cost of doing business in the United States, particularly when US officials are among the most zealous in prosecuting their own grievances in foreign markets.

The United States asserts that it has a high regard for the rule of law. The softwood lumber case has repeatedly brought this into question, with impli- cations that now go well beyond soft- wood lumber. The prime minister is correct in characterizing the US posi- tions, as he did at the Economic Club of New York in October 2005, as ”œnon- sense” and a ”œbreach of faith.”

The US lumber industry likes to portray itself as a champion of markets and fair trade, but has always been quick to grasp at any measure that the US government is prepared to entertain to manage the market or limit imports. Efforts to find a long-term solu- tion have found officials fre- quently frustrated by the unwillingness of the US indus- try to entertain anything other than measures that penalize their Canadian competitors or keep them out of the market.

The trials and tribulations of bilateral trade in softwood lumber date back to well before Confederation. The modern history of the dispute, however, goes back to 1982, when the US Coalition for Fair Canadian Lumber Imports filed its first complaint shortly following implementation of a much- revised US countervailing duty statute and the transfer of its administration from the Trea- sury Department to the Com- merce Department. The newly created International Trade Administration (ITA) found that provincial stumpage practices and a host of smaller programs constituted a ”œbenefit,” but that this benefit was not specific to any industry and thus not a countervailable subsidy within the meaning of US law. ”œLumber I” consti- tuted the first shot across the bow: a miss but with much more to come.

Three years later, the Coalition brought a new complaint ”” Lumber II ”” successfully arguing that evolving interpretation and a number of related court cases had created sufficiently changed circumstances to warrant a new investigation. Changes in the political climate and in some of the key personnel in the ITA presaged a different outcome. When the ITA found that stumpage and a litany of 26 other federal and provincial programs added up to a margin of 15 percent, and that these benefits were specific to the softwood lumber industry, the fed- eral and provincial governments knew that they had a problem ”” a problem that was compounded by the concur- rent negotiations for the Canada-US Free Trade Agreement. Furious consul- tations and discussions among the governments and industry concluded in a federal government decision to negotiate an ”œundertaking,” a polite term in the arcane trade remedy rules for managed trade. Terms were agreed to by the end of 1986 and, for the next five years, Canada agreed to impose a 15 percent tax on Canadian lumber exports to the United States, providing time to reform stumpage and other programs found countervailable.

In September 1991 the federal government, following consultations with the industry and the provinces, neither of which had been happy with the undertaking, terminated the agree- ment, to the surprise of the US govern- ment and the chagrin of the coalition. Within weeks, the US Commerce department initiated a new investiga- tion ”” Lumber III ”” and found the reforms implemented over the previ- ous five years insufficient. Such find- ings were by now unsurprising; the fix appeared to be in. Three years of litiga- tion followed, during which Canada made full use of the provisions of the new chapter 19 as well as the dispute- settlement provisions of the GATT to clarify its subsidy rules. In 1993, a chapter 19 panel found Commerce’s decision to be unsupported by the evi- dence and remanded it back to Commerce, which balked at this ques- tioning of its competence. The issue was finally decided in 1994 by a chapter 19 Extraordinary Challenge Committee, which upheld the original panel’s findings, requiring Commerce to vacate the decision and refund the duties. It took a further two years of foot dragging before Commerce finally refunded the duties. Lumber III thus ultimately vindicated Canada and was touted as a shining example of the value of the Free Trade Agreement.

By 1996, however, in the face of fur- ther political pressure from the Coalition and an imminent new peti- tion, the federal government agreed to head off another round of costly inves- tigation and litigation by negotiating a new managed trade arrangement. The new, five-year Softwood Lumber Agreement (SLA) relied on export quo- tas, limiting exports from British Columbia, Alberta, Ontario, and Quebec to 14.7 billion board feet annu- ally. Shipments beyond this level would be subject to escalating fees. Canadian firms saw their share of the US market decline during this period, but their profits increase. While US producers marginally increased their share of the market, third-country sup- pliers did even better.

The SLA expired on March 31, 2001, by which time industry, the provinces, and the federal government were again prepared to see if they could weather a new round of investigation and litiga- tion. They did not have to wait long. The Coalition filed a new complaint on April 2 ”” Lumber IV ”” alleging both dump- ing and subsidization, and were reward- ed in August by the imposition of preliminary duties; the final determina- tion in March 2002 established com- bined countervailing and antidumping duties of almost 28 percent. The US International Trade Commission (ITC) for its part found no evidence of present material injury ”” a no-brainer considering the managed trade agreement that had been in place ”” but agreed that there was threat of injury, justifying the collection of duties from that point forward.

To date, the US Commerce depart- ment has collected more than $5 billion in duties, money the coalition is eager to see distributed among its members in keeping with the notorious Byrd amendment. This provi- sion introduced a new level of perversi- ty to trade remedy cases, by endowing successful complaining parties and their attorneys with a monetary reward, money that in turn can be used to fund political activity to advance the inter- ests of protectionist lobbies. Despite a WTO ruling that the Byrd amendment is inconsistent with US WTO obliga- tions, it remains in force.

The federal government respond- ed to Lumber IV with a blizzard of legal challenges. Three separate panels were constituted under NAFTA’s chap- ter 19 to review the findings of subsi- dization, dumping, and threat of material injury. The first two panels, while sustaining some of the findings made by Commerce, remanded other aspects back to Commerce for recon- sideration. By the beginning of October 2005, the subsidies panel was awaiting Commerce’s re-determina- tion on its fifth remand, while the dumping panel was waiting for a re- determination on its third remand. By its fifth remand, the subsidies panel had whittled the margin to less than 1 percent, that is, below the level required to collect duties. The most interesting action, however, flowed from the panel reviewing the ITC’s threat-of-injury finding. It found the finding to be unsubstantiated by the evidence and thus unlawful. It twice remanded the decision back to the ITC, ordering it to make a finding con- sistent with the evidence before it. The ITC sent back the same decision, prompting the panel in its third remand, on August 31, 2004, to order the ITC to make a no-injury finding.

The injury panel’s finding was chal- lenged by the US government and sent to an Extraordinary Challenge Committee (ECC) of three retired judges for review, on the grounds that the original panel had manifestly exceeded its authority and made an order inconsistent with US law. For good measure, the coalition, with the US government’s support, also alleged malfeasance on the part of one of the US panelists. In a spirited report, the ECC unanimously dismissed all allega- tions and upheld not only the right of the injury panel to order the ITC to make a finding consistent with its rul- ing, but indicated that its reasoning had been fully consistent with US law. It is this ECC ruling that the US gov- ernment has decided is irrelevant. For its part, Canada is now pursuing in the US courts the dubious legal position maintained by the Bush administra- tion, a step that may in the end prove the most helpful in resolving this par- ticular aspect of the case.

The US rationale for ignoring the ECC ruling arises out of one of the three cases filed by Canada at the WTO complaining about various aspects of the findings by Commerce and the ITC. There is no room here to deal with the details of these WTO cases. Suffice it to say that the most important is the deter- mination by a WTO panel that stumpage can constitute a countervail- able subsidy under the terms of the WTO subsidies agreement, even if the US authorities had not used proper method- ologies to make their findings.

Of particular interest, however, was a ruling by a WTO panel that the ITC finding of threat of injury was inconsistent with US obligations. Consequently, the ITC made a re- determination on November 24, 2004 that it claims to be not inconsistent with the WTO ruling and that replaces the finding found wanting by the NAFTA panel. It is on the basis of this slender thread that the current impasse rests. But as Canadian trade lawyer Larry Herman argues, ”œthe WTO agreement and Chapter 19 of NAFTA deal with completely different matters…[US] conformity with its WTO obligations doesn’t mean it com- plies with NAFTA.” It will be interest- ing to see if the US courts agree that the administration’s position rests on political rather than legal reasoning.

The US decision to flout the ECC ruling took place in the context of deteriorating relations between the United States and Canada. Over the past decade or more, growing differ- ences over foreign policy and other issues have driven a wedge between the two countries to the point that routine matters no longer receive the
kind of constructive attention they should in either capital. The Bush administration’s irritation with Canada has reached the point of indifference to a growing array of Canadian concerns, while Canadian politicians find every occasion to express their differences with their US counterparts.

In these circumstances, US disregard of the ECC decision should be seen as more than a softwood lumber or Canada-US problem. It has brought into question the fundamental com- mitment of the United States to the rule of law and to its treaty obligations. As Tom d’Aquino, head of the Canadian Council of Chief Executives, has pointed out: ”œAt issue is whether Canada can rely on the United States to respect the rule of law and live up to its treaty obligations, or whether the United States is prepared to sacrifice these principles in order to satisfy narrowly based protectionist interests within its economy.”

There are few steps available to extricate the two governments out of the cul-de-sac in which they now find themselves: one is to retaliate; another is to resume negotiations on a differ- ent basis; and a third is to insert some new factors into the equation.

Trade retaliation, which appears to be the favoured option of a growing chorus of critics, is neither as straight-forward as its advocates claim, nor as effective as they might hope. Negotiations, on the other hand, while difficult and unappealing to those who see an intransigent United States unwilling to live up to its current obli- gations, at least offer the prospect of putting this issue behind us once and for all. Strengthening Canada’s hand in such negotiations with some imagina- tive initiatives may also prove helpful.

In negotiating the original terms of chapter 19 as set out in the FTA, Canada did not envisage the need for a retaliation provision. The chapter pro- vided for binational panels to review decisions by national agencies in dumping, subsidization, and injury determinations on the same basis as domestic courts, and to remand issues back to the original agencies for cor- rection. The idea that such national agencies might balk at the terms of a remand or that political officials would ignore the equivalent of a court order was never contemplated. In negotiat- ing the terms of the NAFTA, however, a new article was added providing for a way to address the issue of non-compliance, driven largely by concerns about the Mexican legal system. The terms of article 1905 are extremely complex, including provision for con- sultation, the establishment of a spe- cial committee, more consultations and, ultimately, the right to suspend the application of chapter 19 to the other party or the suspension of ”œsuch benefits under this Agreement as may be appropriate under the circum- stances.” Such a decision, in turn, gives the other party the right to sus- pend the application of chapter 19.

Either suspension of chapter 19 or of other ”œbenefits” is a lose-lose proposition for Canada. It effectively indicates the begin- ning of the unraveling of the agreement, hardly a goal that meets the interests of anyone other than hard-core Canadian economic nationalists and American protectionists. Additionally, as former Canadian ambassador to the US Allan Gotlieb points out, ”œin a retaliatory war, the big is most likely to win.” chapter 19 has proven a valuable asset in reducing the capricious use of trade remedies to harass bilater- al trade, including for softwood lumber. It was less than Canada originally sought, but it is more than the Americans were inclined to give. Canadians will not be well served by chapter 19’s suspension.

It is also not at all clear that trade retaliation solves any problems.

Raising the price of imports of Florida orange juice or California wine, for example, is not likely to persuade senators and congressmen from the southern and western lumber states to support a settlement in defiance of their industries’ wishes, but it will hurt Canadian consumers. Similarly, Canadian oil and gas is part of the national energy grid; withdrawal of its supply cannot be targeted to particular states. While some might hope that inducing long line-ups outside US gas stations or shorting gas-fired power sta- tions in the Midwest will have the desired effect on the lumber states, export taxes on Canadian oil and gas will set off intra-Canadian energy squabbles not seen for 30 years.

The answer lies in negotiations, provided they are pursued on a basis that is likely to improve Canada’s position. To date, the Canadian approach to negotiations has suffered from two fatal flaws: mutually contra- dictory objectives and the belief that negotiation is an alternative to dispute settlement where Canada holds all the cards. Hence the dead end. The way out is to pursue more coherent and consistent objectives, to integrate dis- pute settlement into the negotiations rather than treating them as alterna- tives, and to inject some new elements into the equation to provide the two governments with sufficient political room to justify a return to the table.

Throughout the long history of this dispute, Canada has, on the one hand, entered into managed trade agreements and, on the other, consid- ered plans whereby US countervailing duties would be phased out as the Canadian provinces moved to market- based pricing for timber. These two approaches have proved at odds with each other. The first presupposes the continuation of Canadian stumpage practices for the indefinite future and, as history demonstrates, will generate constant tension within the Canadian industry and between the two coun- tries in administering any managed trade solution. The second would replace stumpage practices with US- style market-based pricing in return for assured access. Canada’s contradictory strategy has not worked.

The Canadian conviction that dis- pute settlement provides valuable lever- age rests on the assumption that, if negotiations fail, Canadian dispute set- tlement victories will force the United States into compliance with Canada’s interpretation of the trade rules.

Experience suggests that dispute settlement practiced as an alternative to negotiation has not yielded practical results, particularly on the softwood lumber file. The problem is that dispute settlement has two possible outcomes ”” winning or losing ”” and both have serious implications for the manage- ment of trade relations. It is evident that on both the Canadian and US sides, too little thought was devoted to the consequences of either outcome.

The way forward is to build a nego- tiated solution on the findings of dispute settlement panels. Of the many panel findings in the WTO and the NAFTA, two are critical. The first was the WTO finding in 2002 that stumpage practices constitute a benefit to a specific industry against which a countervailing duty may be applied. The finding faulted the United States for using US domestic prices for calcu- lating the amount of the subsidy, but ruled that harvesting rights granted by Canadian provincial governments in respect of standing timber constituted the provision of goods within the meaning of the subsidies code, and thus were a countervailable benefit. This finding was upheld by the Appellate Body, which additionally ruled that the United States can rely on cross-border price comparisons to calculate the extent of any benefits. Herein lies the basis for an agreement on the subsidy dimension: the negotiation of pricing benchmarks to determine the existence of subsidies within the meaning of the WTO. More importantly, predictable benchmarks would enable the provinces to set prices at levels that would not justify the application of countervailing duties.

The second is the NAFTA panel’s finding on injury, specifically that the mere existence of trees and of production capacity in Canada does not constitute a threat to the US industry. Instead, there must be credi- ble evidence on the record of price suppression, increas- ing exports, loss of employment, declining market shares, and similar factors to warrant a finding of threat of injury. Here the solution lies in an agreement that in any future cases, the ITC be held to the strict standard set by this panel in determining injury.

Negotiating a lasting agreement will entail resolving a host of technical difficulties. Simply adopting an auction system, for example, will not of itself eliminate the threat of a new complaint, since auctions to determine cutting rights in remote areas will be of interest to only a few bidders and thus be easily manipulated to yield questionable prices. Similarly, eliminating restrictions on log exports will not necessarily lead to market pricing for this resource. Much hard work will be required to devise a regime that can withstand scrutiny under a system that is geared to finding subsidization and dumping. Nevertheless, we believe that offi- cials with a mandate from both govern- ments to negotiate a long-term solution based on establishing an open and competitive market for trade in soft- wood lumber can devise such a system. With rare exceptions, previous soft- wood lumber negotiations have sought to find short-term solutions while leav- ing it up to the provinces to implement long-term reforms. The Maritime provinces have found that solution, but the other provinces have not. Perhaps bilateral negotiations approached with a broad enough mandate will be suffi- cient to lead to the necessary reforms.

The United States, for its part, must be prepared to enter into negotia- tions that are capable of yielding a last- ing solution. No Canadian government can enter into negotiations that will only yield the desired results after the conclusion of a unilateral US investiga- tive process. US officials must come to the table with a mandate that will lead to results that can be implemented in law and condition the application of the trade remedy laws in future soft- wood lumber disputes. We agree with US Trade Representative Rob Portman, that ”œit is time to negotiate a settle- ment to resolve this decades-long dis- pute once and for all.” It would be even more helpful if Mr. Portman were to initiate negotiations by ensuring that Commerce lift the now illegal penalty duties and refund the previously col- lected duties. In response, his Canadian counterpart, Jim Peterson, should offer to come to the table acknowledging that subsidies are a problem that need to be eliminated and that Canada is prepared to negoti- ate a deal that will lead to a truly free and open market for logs and lumber.

Both governments must be prepared to lean on their most obdurate elements: the coalition in the United States and the provinces in Canada. This will not be easy. US law provides the coalition with extensive rights, including the right to veto any ”œundertaking” that it believes is not in its interests. In Canada, the provinces hold most of the policy cards, given their constitutional responsibility for resource management. But just as the ”œlaw” gives the coalition power, the proper implementation of the NAFTA gives the US administration power. Its decision to ignore the ECC finding may have been politically attractive, but it has weakened its position as a principled upholder of the rule of law. Canada needs to help the Bush administration see this as a political, rather than a legal, decision, by giving it some new elements to ponder. To some observers, this trans- lates into retaliation. We disagree, but agree with former Canadian ambassador to the United States, Derek Burney, that the federal government can strengthen its position by neutralizing the continu- ing effect of the penalty duties being ille- gally collected. Canada must continue to insist that any duties collected must be refunded, but can reduce their impact by paying the duties from now until the United States brings its border regime into conformity with NAFTA. This, in turn, should also strengthen the federal government’s ability to influence provin- cial policy development.

The tragedy of Hurricanes Katrina and Rita, as well as the problem of beetle-infested forests in British Columbia, also offer both sides a face- saving alternative to leaning on nar- rowly focused interests. The United States needs lots of lumber to rebuild the devastated Gulf region. US lumber firms lack the capacity to meet this need. Canada has a surplus of beetle- infested trees that need to be harvested before they lose their value. If the United States agrees to refund the ille- gally collected duties, British Columbia and the industry could agree to harvest this wood and make it available as a gift to aid in the reconstruction effort. Such a gesture could set the tone of neigh- bours working together to solve com- mon problems.

To make progress, the federal gov- ernment and the provinces will need to work with industry to engage US political and commercial interests. As pointed out by Tom d’Aquino, ”œwe need to bring a broader, economy- wide perspective to bear on these mat- ters,” by engaging senior US business leaders. At the same time, we are wary of allowing the softwood lumber issue to become hostage to broader efforts to address any shortcomings in the dispute settlement process or deal with other emerging cross-border issues. While it is true that broader negotia- tions sometimes ease solutions on nar- row, deeply controverted issues, we believe there are also dangers in sug- gesting that the price of peace lies in making concessions in other areas.

Failure to address this problem and find a lasting solution will gradually add to already troubled relations. The oppo- nents of the Canada-US Free Trade Agreement claimed that it would devas- tate Canadian industry and condemn Canadians to the miserable fate reserved for suppliers of natural resources to the United States. Now the opponents of the agreement and, regrettably, some of its supporters proclaim that it is a failure because it does not protect our natural resource industries, specifically soft- wood lumber. This is irony with a vengeance that shows that 140 years of independence have done little to damp- en the colonial mentality infecting our public life. Allowing the softwood lum- ber file to fester will only add fuel to the destructive aims of free trade’s oppo- nents on both sides of the border.

If the charge of egregious, irrespon- sible and cavalier disregard of trade agreement obligations may be fairly laid at the US door, resorting to school- yard language, uttering vague threats about the NAFTA, and issuing ominous warnings about retaliation do little to make the cul-de-sac ever smaller. It’s time to turn around and begin the measured, careful steps that will take Canada forward and allow us to put the softwood lumber case behind us.

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