Both sides win and both sides lose

Harper and Bush have negotiated a deal that will end the long and costly squabble over softwood lumber

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The Gazette, Friday, April 28, 2006

Deal or no deal with the Americans on softwood lumber? For three days, the question has dominated the political agenda among Ottawa, the producing provinces and the stakeholders.

From the moment the story broke Tuesday that Stephen Harper and George W. Bush had spoken about a framework agreement to settle the five-year dispute, centrifugal forces were unleashed on both sides of the border.

Nearly lost in the ensuing volley of headlines about provinces, industry and the opposition denouncing the deal was the fact talks had been kicked up to the prime minister and president. Once the elements of an agreement kicked in between the two principals, it would become very difficult to move off it.

The 2006 softwood lumber agreement looks a lot like the 1996 agreement, which lapsed in 2001, triggering five years of litigation and negotiations, thousands of lost jobs in Canadian sawmills and billions of dollars in duties illegally collected on Canadian imports to the United States.

The Canadians would agree to cap their share of the U.S. softwood market at current levels of 34 per cent, and the Americans would agree to eliminate duties and return about 80 per cent of the more than $5 billion collected from Canadian producers.

Interestingly, Canada's market share has remained steady in the last five years, even though the 2001 loonie was valued at 63 cents, favouring both exporters and importers, and the current 89-cent Canadian dollar hurts both on their operating margins. But the demand for quality Canadian grades of northern softwood has remained in spite of a 25-cent increase in the value of our dollar. So demand is clearly driven by market forces, not by the exchange rate.

In a litigated settlement, one side wins and the other loses. In a negotiated settlement, both sides win and both sides lose.

For the producing Canadian provinces, the question immediately became what was their allocation of Canada's 34-per-cent share of the U.S. market. This is particularly critical for the three big producing provinces of British Columbia, Quebec and Ontario. A new minority government, with an eye to graduating to a majority at the next election, could ill afford to abandon any one of the Big Three.

British Columbia is the biggest producer and the trade minister, David Emerson, is a B.C. minister, brought across the floor from the Liberals to manage this file as well as an important trans-Pacific trade agenda.

Quebec is home to a lot of small lumber yards that have been struggling along with the larger forestry industry. And Ontario immediately suspected it was being screwed, with the McGuinty government denouncing any deal that cut back the province's share of exports.

For the industry, it's about the money and cutting up the cash.

While the Americans announced a draft settlement, the Harper government insisted there was nothing to announce, even as the McGuinty government was vowing to scuttle it in the provincial legislature. All through question period on Wednesday, Emerson stonewalled the issue, insisting there was no deal until one was announced.

And then the government virtually disappeared for the next 24 hours. Cabinet ministers came and went from Harper's Parliament Hill office, with no sign of the prime minister.

Yesterday, with the opposition howling for answers, Harper declined to come down for question period. Emerson and Industry Minister Maxime Bernier, the other two ministers who could answer for the file, were also conspicuously absent. It turned out they were in Washington to announce the deal at the embassy.

Meanwhile, it was left to Transport Minister Lawrence Cannon, Harper's seatmate in the House, calmly to ask agitated opposition members to await an imminent statement by the prime minister.

When it came, it was clear: Harper had spent a good deal of time on the phone with the premiers, while Emerson worked on industry executives; finally ambassador Michael Wilson got some fine-tuning of the accord, and it was a done deal.

For industry, the choice is a simple one - 80 cents on the dollar and seven to nine years of certainty, or the prospect of further litigation, duties and uncertainty.

No deal is better than a bad deal. But a deal everyone can live with is better than no deal. And Harper has already learned Sir Wilfrid Laurier was right: This is a very difficult country to govern.

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