Softwood deal still being negotiated.

A resolution on the Canada-U.S. softwood lumber issue is far from being reached due to some core issues that must be worked out, says Free Trade Lumber Council executive vice-president Carl Grenier.

"What the United States is doing is putting the most restrictive interpretations on the April 27, basic term agreement," Grenier says.

Canadians should not be surprised by that fact, since history appears to be repeating itself, he says.

"If you are negotiating with the United States it is basically because you have agreed that you are guilty. If you are guilty, you don't have a lot of leverage."

The United States is not acknowledging Canada's North American Free Trade Agreement (NAFTA) arbitration wins. Instead, they are returning funds under a "Compromise of Claims," Grenier says.

"They are ready to do a deal under the theory that we are guilty as charged. That is the theory and Canada has accepted that."

The United States wants to use the April 27 resolution to solve future trade disputes with Canada. In essence, they want to circumvent Chapter 19 of NAFTA, which establishes the dispute settlement process.

"Canada will not come out and say they are abandoning Chapter 19, obviously not, (but) the practical effect of this deal will be exactly that," Grenier says.

The federal government is making the softwood lumber deal a confidence-vote issue, so if the Stephen Harper Tories are defeated on this, the government falls, says Grenier.

But he doubts other parties will want to overthrow the government on this issue.

Negotiators from all the provinces concerned were hoping to achieve some resolution on the agreement by the first week of June, but talks with United States are ongoing.

A number of key points deserve some attention, Grenier says.

Ontario and Quebec are examining the hard cap on Option B; a quota and tax clause of the agreement. Under the terms, Canadian companies will be unable to ship more than the allotted amount of softwood to the United States.

"(Company wood) will not receive an export permit to leave Canada," says Tembec's president of forest products division, Dennis Rounsville.

"I don't think anyone is supportive of hard cap. It is one of the items in discussion."

For large industry players who have longtime American-based clients, this clause makes it difficult to service their needs without paying a penalty, Grenier says.

"The United States is not showing much flexibility on this one."

The anti-circumvention clause concerns British Columbia's industry. They want written assurances that the changes they are bringing forth with regard to pricing and stumpage fees will not be affected by the softwood resolution.

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So far, the United States has not agreed on any assurances, Grenier says.

This is not only a concern for British Columbia, but for all provinces, since it will bring forward new changes in forest policies in the next seven to nine years.

"The British Columbia government says this is a deal breaker if they don't get this," Grenier says.

The anti-surge mechanism, which refers to above-level shipments of softwood to the U.S. has Albertans concerned, since they could already be in a surge situation. Again under Option B, the export tax could be increased by 150 per cent.

Exporting to other countries is not an easy task, especially since Siberia's boreal forest is right next door to the growing Asian countries hungry for timber to build new homes.

Grenier says it is imperative that legal drafting is done carefully because there could be more restrictive and punitive measures within the resolution.

www.ftlc.org

By KELLY LOUISEIZE

Northern Ontario Business