US embassy cable - 04HALIFAX39

UNCLAS SECTION 01 OF 02 HALIFAX 000039 
 
SIPDIS 
 
SENSITIVE 
 
COMMERCE FOR 4320/MAC/WH/ON/OIA/BENDER AND ITA/IA 
DEPT PASS USTR - TERPSTRA AND CHANDLER 
STATE FOR EB/TPP/BTA AND WHA/CAN 
 
E.O. 12958: N/A 
TAGS: ETRD, CA, Softwood lumber, Trade 
SUBJECT: SOFTWOOD LUMBER: ATLANTIC PRODUCERS' VIEWPOINT 
 
REF: 03 OTTAWA 3636 
 
 
1.  (U) This message is sensitive, but unclassified.  Not for 
distribution outside USG channels. 
 
2.  (U) SUMMARY/INTRODUCTION:  Reftel outlined Canadian 
reactions, which were mostly negative, to the proposed agreement 
on softwood lumber which was floated in early December.  At that 
time, it appeared that Canadian players would spend much or all 
of January weighing their options. 
 
3.  (U) In late January, Mission staff had discussions with key 
representatives of Atlantic provinces lumber producers.  Due to 
the substantially market-based timber supply in these provinces, 
their lumber producers have been exempted from past 
countervailing duties.  On trade policy questions, they speak 
unanimously through the Maritime Lumber Bureau (see website 
mlb.org).  This message outlines their viewpoint on the 
long-standing lumber dispute. 
 
4.  (SBU) Maritime industry representatives continue to favor a 
negotiated solution, provided they obtain adequate levels of 
quota.  They express frustration at the failure since 1986 of 
other provinces to reform their timber sale practices in ways 
which could begin to address U.S. concerns.  They hinted that 
the GOC trade minister must develop a comprehensive knowledge of 
the industry Canada-wide; he cannot be effective on this file by 
talking to an unrepresentative sub-set of producers.  They 
expect a return to the bargaining table sometime in late 
February or early March.  END SUMMARY/INTRODUCTION 
 
5.  (SBU) THE MARITIME LUMBER BUREAU:  In Canadian geography, 
"Maritime" usually refers to three provinces (New Brunswick, 
Nova Scotia and Prince Edward Island) while "Atlantic" refers to 
these provinces plus Newfoundland -- a relative newcomer, having 
joined Canada in 1949.  While the MLB was formed in the 1920's 
and retains its original (less inclusive) name, it now 
represents lumber producers in all four Atlantic provinces. 
Mission staff spoke in late January with MLB President/CEO Diana 
Blenkhorn and also with Gaston Poitras, who heads the sawmills 
division of MLB's largest member, J.D. Irving Ltd. (JDI).  While 
Poitras was willing to discuss trade issues with us, both he and 
Blenkhorn stressed that the MLB speaks unanimously for Atlantic 
Canadian producers on softwood lumber trade.  Following are key 
points made by the MLB: 
 
6.  (U) LAND OWNERSHIP:  Of all softwood lumber production in 
the Maritimes, over 75 percent comes from trees grown on private 
land.  Moreover, timber sales from provincially-owned land (i.e. 
the remaining 25 percent) are market based, and these provinces' 
stumpage rates have consistently increased since 1986. 
 
7.  (U) GOVERNMENT ASSISTANCE:  The lumber industry in the 
Maritimes refuses government support, and specifically opposed 
the GOC's 2003 assistance package to lumber producing 
"communities." 
 
8.   (U) ANTI-CIRCUMVENTION:  The MLB enforces one of North 
America's most rigid Certificate of Origin systems for lumber. 
This system is subject to ISO 9000 audits and requires lumber to 
be sawn from logs originating in Atlantic Canada or the State of 
Maine.  As long as this document is required for entry into the 
U.S. (as it has been since 8/2/2001), circumvention by other 
provinces/countries via the Maritimes is effectively prevented. 
 
9.   (SBU) AGREEMENT PROSPECTS:  Blenkhorn said that the 
December 6 proposal moved "in the right direction" and that an 
agreement "might still be doable if the 'exits' are revised." 
Both Blenkhorn and Poitras said they favor a negotiated solution 
to the current dispute, and that they expect a return to the 
table in late February or early March.  Blenkhorn said she made 
the MLB's case to U.S. industry representatives on December 4 
and that their main concern had been the risk of a surge of 
imports from the Maritimes, a concern which she said was not 
supported by historical experience.  She cited long-term 
economic data showing (in MLB's view) that Maritime lumber 
exports to the USA are driven by market demand, not by special 
treatment, and have shown growth similar to that of US lumber 
imports from third countries. 
 
10.  (SBU) COST OF DISPUTE:  Both Blenkhorn and Poitras lamented 
the fact that, while there have been "no allegations" of subsidy 
or dumping against Maritime producers, they are repeatedly 
"dragged through" this dispute and must pay the associated legal 
costs and anti-dumping duties.  They noted that US anti-dumping 
law applies to entire producing countries; in other words, it 
does not allow for exclusion of specific producers or geographic 
regions, whatever the merits of doing so.  Blenkhorn observed 
that had the dispute not involved an AD case this time round, it 
would be simpler to resolve, since British Columbia producers 
would not be so strongly motivated to drive down unit costs by 
increasing volumes (which she said they have been doing in order 
to set the stage for lower dumping margins in later periods). 
This, she said, is inflating the dispute's final cost. 
 
11.  (SBU) That being said, Blenkhorn emphasized that the MLB 
does not criticize U.S. trade legislation, but rather encourages 
industries on both sides of the border to respect it.  On this 
point, she remarked that the U.S. Coalition for Fair Lumber 
Imports (CFLI) has seemed more "blinkered" during the current 
round of the dispute. 
 
12.  (SBU) INTER-PROVINCIAL RELATIONS:  Blenkhorn emphasized the 
community of purpose between the MLB and U.S. lumber producers: 
both groups have difficulty competing with the real or effective 
subsidy programs which exist in other Canadian provinces, and 
they are frustrated by those provinces' failure to reform over 
the past two decades.  To those who object to so-called "special 
treatment" for the MLB, Blenkhorn says such treatment is 
anything but "special."  On the contrary, it is consistent with 
the intent of the U.S. industry's efforts, and other provinces 
should view the Maritime industry as a positive model. 
 
13.  (SBU) INDUSTRY CONSULTATION:  Blenkhorn remarked that in 
order to succeed on this file, new GOC International Trade 
Minister Jim Peterson needs to gain a detailed understanding of 
the lumber industry's circumstances in each region.  "Just 
trying to get a prevailing view from eight or ten companies 
won't work."  The December 6 proposal "was negotiated mainly by 
the B.C. industry, and they were betting they'd get a 
disproportionate share of quota -- in return for driving the 
market into the tank while everyone else was reducing 
production." 
 
HILL