01/23/2012 11:29 EST | Updated 03/24/2012 05:12 EDT

Softwood Lumber: Canada And U.S. Agree To Extend Agreement


OTTAWA - Canada and the United States have bought two extra years of relative peace on the lumber front.

The two governments agreed Monday to extend the 2006 softwood lumber agreement by two years to October 2015 with no modifications to the conditions of the deal.

At the time, the deal — which was controversial on both sides of the border — imposed a truce in a bitter dispute that had seen the U.S. levy $5 billion in penalties on Canadian exporters.

Canadian Trade Minister Ed Fast noted at the signing in Washington that the dispute had taken "a devastating financial toll" on the industry, with over 25 separate legal cases launched against Canadian exporters.

"The extension... is great news for Canadian lumber workers and their families,” he added.

"This extension agreement will bring much-needed stability and predictability to the lumber industry. We are sending a clear message that our government is committed to securing predictable access to the U.S. market and strengthening the financial security of Canadians."

Industry spokesmen welcomed the announcement, but also cautioned that fundamental disagreements remain about what constitutes fair trade in the disputed sector.

The U.S. Lumber Coalition warned it will be keeping a close eye Canadian practices.

"If the U.S. industry continues to find itself having to seek multiple arbitrations to address Canada's unwillingness to adhere to its commitments, then the U.S. industry has to seriously consider whether it would not be better off exercising its rights under U.S. trade laws," coalition chairman Steve Swanson said in a release.

Since the signing of the 2006 deal, the U.S. has won two judgments at the London Court of International Arbitration. A third complaint that B.C. is exaggerating the damage from mountain pine beetle to reduce stumpage fees is headed to oral arguments in February.

The head of the Forest Products Association of Canada agreed the deal was not ideal, but said the government's approach was the correct one at this time.

"Markets are difficult, the U.S. economy is responding sluggishly, especially in the housing market, and neither side wants the uncertainty of where trade is going," said FPAC president Avrim Lazar.

"Everybody knows how it would unfold (with no deal) and everybody has decided it's better to have a stable, predictable environment until we have a better sense of where markets are going."

Lazar said he hopes the next few years will bring a recovery in U.S. housing, and continued expansion into China, putting Canada in a strong bargaining position.

That is the wrong approach to what everyone recognizes as a problem, said NDP trade critic Brian Masse, who notes that jobs in the sector are diminishing.

"(The agreement) is not working for the United States and it's not working for us, and it hasn't stopped the law suits," he said. "I don't understand the logic of continuing a dysfunctional relationship."

With the U.S. housing market still on the ground, producers on both sides of the border are in a fierce competition for markets and prices. Meanwhile, provincial governments want to protect mill jobs until the crisis passes.

Since the U.S. housing crash that began in 2007, Canadian shipments of wood products south have tumbled from $19 billion in 2004 to $5 and $6 billion in 2009 and 2010 respectively. According to government data, lumber exports to the U.S. totalled $2.6 billion in the first 11 months of 2011, with B.C. accounting for 58 per cent of the total.

In the interest, however, Canadian producers have turned their attention to China, and have made significant inroads. According to the forestry association, lumber exports to China rose 103 per cent in 2011 from the previous year, and now represent 23 per cent of total softwood shipments.

Masse said a long-term solution for the industry's struggles lies in investments to create more processed wood products that add value to exports and create jobs in Canada.