U.S., Canada Make Softwood Lumber Deal

Lumber is stacked in a yard for sorting at the Pan-Abode Mill in Richmond, B.C. ,Thursday, April 27, 2006. The Bush administration announced Thursday that it had reached a tentative agreement with Canada to settle a trade battle over softwood lumber. The United States has been imposing penalty duties on Canadian lumber for a number of years, contending that Canada is unfairly subsidizing its own producers. (AP Photo/CP, Chuck Stoody) (Chuck Stoody - AP)

WASHINGTON -- It won't provide much relief to the wallets of U.S. home buyers, but an agreement on softwood lumber will resolve a major trade irritant that has roiled relations between the United States and Canada for more than two decades.

The deal was announced by the countries' top trade negotiators late Thursday in Washington after the two sides ironed out some last-minute glitches.

President Bush called Canadian Prime Minister Stephen Harper from Air Force One to congratulate him.

"This agreement shows how NAFTA partners can overcome differences and work together," Bush said in a statement later, referring to the North American Free Trade Agreement among the United States, Canada and Mexico.

Harper, who took office in February as the Conservative Party returned to power for the first time in 12 years, had made resolving the dispute a top priority in his effort to smooth relations with the United States, which had been strained by a variety of issues, including the U.S.-led war in Iraq.

Harper, to a standing ovation in the House of Commons in Ottawa, said, "It's a good deal that resolves this long-standing dispute and allows us to move on. Today is a great day for Canada."

Members of Congress from timber-producing states praised the deal. Sen. Max Baucus, D-Mont., said it would close the book "on a dispute that has poisoned U.S.-Canada relations for far too long."

Senate Agriculture Committee Chairman Saxby Chambliss, R-Ga., said, "Nothing has plagued the softwood lumber industry in my home state of Georgia more than this issue."

Not everyone was happy. Bill Graham, opposition leader of the Liberal Party in the Canadian Parliament, said the deal was only good news for the U.S. lumber industry and that the North American Free Trade Agreement, whose mediating panels have often ruled in favor of Canada, had now lost its teeth.

"Unfortunately, it's a great day for American industry, for American policy and for American trade _ and it's a disaster for Canada and free trade," Graham said.

Under the agreement, the United States will remove penalty tariffs on Canadian softwood lumber imports that started at 27 percent in 2002 and now average around 11 percent.

In place of the U.S. tariffs, Canada agreed to impose taxes on its lumber exports to the United States if the price of lumber falls below a specified level. Softwood lumber is currently averaging $370 per 1,000 board feet and that price would have to fall to $355 per 1,000 board feet to trigger the Canadian border tax, which would start at 5 percent and rise to 15 percent if prices kept falling.

The U.S. goal is to use the Canadian tax to keep Canada's share of the U.S. softwood lumber market from exceeding the current level of around 34 percent. However, the deal does not impose any specific cap.

Analysts said the sliding scale of Canadian taxes will mean that Americans buying new homes will not get a price break from the deal.

"This is all organized to keep competition down and prices high for U.S. producers," said Gary Hufbauer, an economist at the Institute for International Economics, a Washington think tank.

Jerry Howard, executive vice president of the National Association of Home Builders, complained that the deal "would provide a massive subsidy to the U.S. timber industry at the expense of millions of American consumers."

As part of the deal, the United States agreed to return to Canada $4 billion of the nearly $5 billion in penalty tariffs collected on Canadian imports. Half of the remaining $1 billion would be given to the U.S. industry to help cover legal expenses, a point that raised the ire of opposition leaders in Canada.

"It's outrageous, it's a sellout, it's a crime that the Americans would keep a billion dollars of money that seven decisions have now said they shouldn't have," said Jack Layton, the leader of the opposition New Democratic Party, referring to rulings by various trade panels that the U.S. duties were improper.

The Coalition for Fair Lumber Imports, the powerful U.S. industry group that has led the fight against Canadian imports, said it could support the terms as U.S. officials have described them.

The outline of the agreement reached Thursday must now be fleshed out with legal language, a process that was expected to take between one and two months.

Industry groups from both countries will have to make various commitments to put the deal into effect. In Canada, the parliament will have to approve the new border taxes that would take effect if lumber prices fell.

While an earlier effort to resolve the lumber dispute in 2003 collapsed because of opposition from Canada's provinces, officials said they believed this deal was more likely to go through. Harper said he already had the backing of the key lumber-producing provinces of British Columbia, Ontario and Quebec.

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Associated Press writers Beth Duff-Brown in Toronto and Matthew Daly in Washington contributed to this report.