US-Canada lumber accord will benefit American industry

A hard-line United States trade policy has produced a negotiated settlement of a trade dispute over Canadian softwood lumber exports. The same toughness has escalated a battle with the European Community over farm policies that, the US says, cost American farmers about $400 million a year.

The US announced Tuesday that it will retaliate against high tariffs imposed by the 12-nation EC on US feed-grain imports to Spain with a duty of up to 200 percent on European alcoholic beverages and gourmet foods. But the new levies will not necessarily be imposed until Jan. 30, giving both sides more time to talk.

A similar lever was used against the Canadians. The US Department of Commerce ruled Oct. 16 that Canadian provinces subsidize their exports of softwood lumber and imposed a countervailing duty of 15 percent. The ruling was preliminary, subject to a final judgment on Dec. 30.

At one point, Canadian International Trade Minister Patricia Carney announced that Canada would not negotiate - that it would await the final duty rulings in the US. But Canada changed its mind and decided to negotiate a bilateral deal. With $2.87 billion of exports at stake, the Canadians offered to impose their own export charges of 15 percent or equivalent hikes in ``stumpage fees'' charged Canadian lumber producers on government-owned timber.

Working out the details of such a deal proved difficult. The last negotiating session started at 2 p.m. Monday and continued with only a 90-minute break until about 11 p.m. Tuesday - minutes before the legal deadline for a final countervailing duty decision.

The US's toughness results partially from a trade deficit expected to hit a record $170 billion this year, which has produced enormous pressures from Congress for stern trade measures.

Even developing countries are not exempt from this toughness. Today the White House is expected to announce a reduction in the number of poor countries eligible for a special tariff break known as the Generalized System of Preferences (GSP).

Congress has asked for a review of the system. If a country has developed substantially, it may be ``graduated'' from the system by the US administration. Or, if it provides its workers with inadequate rights, it may be declared ineligible for GSP.

In the softwood lumber case, one advantage to Canada of a settlement is that Canada - not the US - keeps the more than $560 million (US$403 million) in export charges rather than the US Treasury. The federal government plans to distribute that money to the lumber-exporting provinces, including British Columbia, Alberta, Ontario, Quebec, and New Brunswick.

When Parliament reconvenes Jan. 19, the Progressive Conservative government will introduce legislation imposing the 15 percent export charge on softwood lumber exports retroactively to Jan. 8. In the meantime, the US will continue collecting a 15 percent duty on these imports.

The actual amount of revenues from the export tax is unknown because of the uncertainty of its impact on lumber exports. That will depend on how long the American housing boom continues. More certain is the boost in American lumber prices, raising substantially the cost of new houses or home renovations.

Another advantage to the agreement claimed by Canadian officials is that it interferes less in the natural resource policies administered in Canada by provincial governments. The provinces and the federal government will work out boosts in stumpage fees or other charges to eventually replace the export tax.

Apparently, the negotiators were unable to work out an exact amount for the boost in such fees. In any case, the US reserved the right to reimpose its 15 percent duty or a portion of it if the US does not consider new provincial fees equivalent to 15 percent.

A third advantage of the deal from the Canadian standpoint is that it removes a potential hazard to conclusion of a broad Canadian-American free-trade arrangement now being negotiated. Further, it helps the government of Prime Minister Brian Mulroney to continue with his policy of maintaining good Canadian-American relations.