Trump leak on softwood lumber confuses tricky file that costs $30M just to manage

In the wake of a report that Donald Trump’s transition team would include softwood lumber in future talks on the North American Free Trade Agreement (NAFTA), information tabled in the House of Commons this week reveals the cost of managing the contentious file for the federal government.

A reply to a written question submitted by Saskatchewan Conservative MP Randy Hoback said that for the 2015-2016 fiscal year, the federal government’s budget for managing the file — including “support for current negotiations towards a new agreement, as well as for possible litigation” — is $30 million.

That amount could pale in comparison with new duties that may still be in store, should trade action start. Previous disputes between Canada and the U.S. cost the industry billions. But new levies wouldn’t start until later in the new year, should no deal be reached.

The previous softwood lumber agreement expired in the fall of 2015. A one-year standstill period prohibiting trade actions since then expired Oct. 12, but the U.S. industry has not yet triggered a new round of litigation.

Meanwhile, talks between officials continued in earnest and are now said to be at a very sensitive stage. International Trade Minister Chrystia Freeland travelled to Washington, D.C. to meet with her counterpart, U.S. Trade Representative Michael Froman, as recently as Nov. 2.

The pair may meet again this weekend at the Asia-Pacific Economic Cooperation (APEC) summit in Lima, Peru.

The written response to Hoback listed 12 previous meetings between the pair since Freeland was sworn in. But the list did not include numerous phone calls between officials. “Informal communications are frequent and are not tracked,” it said.

Canada has presented 10 documents — including proposals, concept papers and issue-specific papers — to the U.S. during this time, including its most recent proposal on Oct. 12, the tabled document said.

The U.S. has presented Canada with three proposals and one technical paper, it said, with its most recent offer made on Oct. 9.

“Neither side has indicated that they do not intend to put forward further offers,” it said.

Freeland’s office says the two countries continue to have “specific and technical conversations” towards a deal.

Christy Clark

B.C. Premier Christy Clark said last week she looked forward to working with Donald Trump, but she’d never heard him talk about softwood lumber, an industry vital to her province’s economy. (CBC News)

‘Not really central’ to U.S.?

The day after Donald Trump was elected last week, B.C. Premier Christy Clark said she remained optimistic that the softwood lumber talks would yield a new agreement and she had not seen any change of focus at the negotiating table.

“I have never heard (Trump) talk about softwood lumber particularly,” she said, calling lumber “vital for British Columbia and not really central to most of the American economic interest.”

But a leaked document purported to represent the intentions of Trump’s transition team is now discussing adding softwood lumber to NAFTA, so countries don’t continue re-litigating the issue every few years.

Its authorship is unclear. But with the transition still in infancy, it heightened speculation about what Trump really has in mind. Heated statements from possible insiders have been all over the map.

The NAFTA suggestion seemed inconsistent with Trump saying during the campaign he’d rather make deals bilaterally on specific issues.

The previous softwood lumber agreement was a single-industry deal between Canada and the U.S. only. Folding it into comprehensive, continent-wide talks would be complicated.

‘Opposite of free trade’

“Softwood lumber is almost the opposite of free trade,” said Adam Taylor, a former advisor to Conservative trade minister Ed Fast and now a consultant with Ensight. “Essentially [the U.S. industry] is trying to be as protectionist as they can.”

“The U.S. Lumber Coalition wouldn’t necessarily be well-served by having this permanently entrenched in NAFTA,” he said. It’s this group that ultimately calls the U.S. government’s shots on all negotiations, since it must agree not to litigate for any agreement to work. 

“Entrenching a market cap or even a quota…wouldn’t serve them if they couldn’t meet the level of market access they had protected,” he said, as housing starts fuel the U.S. recovery and demand for Canadian two-by-fours remains high.

“They want as much flexibility as possible,” he said. “They want to have first crack at meeting demand.”

Softwood Lumber Talks 20161012

Talks between Canada and the U.S. — aimed at avoiding litigation by setting new rules for softwood lumber trade — are at a sensitive stage. (Jonathan Hayward/Canadian Press)

Western Canadian producers may be floating the idea of a quota system as one possible solution, as well as changes to the way B.C. limits exports from its private forests, another long-term irritant. But the U.S. lobby has not necessarily wanted to take that approach.

“Maybe they’ll settle for a quota, but I don’t think that’s the number one ask,” Taylor said.

Were Trump’s advisors speaking without understanding what the American industry wants?

“Part of the Trump rhetoric was ‘we negotiate bad deals.’ Part of the U.S. Lumber Coalition’s rhetoric was that the softwood lumber agreement, as is, isn’t a good deal. So I think there’s some similar views,” he said.

But Taylor has trouble believing softwood lumber is a priority for Trump. “It doesn’t make sense to me.”  

The Trump team is focused on American jobs. Drastic action could upset the U.S. construction industry.

“Some of these guys responsible for transition are just coming to grips with the reality of the complexity of trade and supply chains and highly-integrated industries and they don’t know quite how to match their campaign rhetoric with reality,” Taylor said.