US embassy cable - 04QUEBEC202

UNCLAS QUEBEC 000202 
 
SIPDIS 
 
DOC FOR JIM TERPSTRA 
USTR FOR SAGE CHANDLER 
DEPT FOR WHA/CAN AND EB/TPP/BTA 
 
E.O. 12958: N/A 
TAGS: ETRD, EIND, CA, US, Softwood lumber, Trade 
SUBJECT: QUEBEC LUMBER INDUSTRY ON SOFTWOOD STATE OF PLAY 
 
SENSITIVE BUT UNCLASSIFIED -- PROTECT ACCORDINGLY 
 
1. (SBU)  Summary:  Post recently met with Quebec lumber 
officials who told us the Province's first priority is to head 
off a Lumber V and carve out a permanent solution to the 
bilateral dispute.  They argued that American industry is not 
benefiting from the U.S.-Canada softwood lumber dispute as Chile 
and other South American and European countries are "coming in 
through the back door," occupying a share of the market 
previously held by Canadian companies.  Quebec lumber officials 
say Quebec Province is in agreement with other Canadian 
provinces on the overall principles of a resolution but there is 
still no consensus on a reengagement strategy.  Quebec lumber 
industry officials recently met with federal Trade Minister Jim 
Peterson and urged that softwood lumber be on the agenda when 
President Bush and PM Martin meet in Ottawa later this month. 
End Summary. 
 
2.  (U)  On November 17, Consul General checked in with Georges 
Courteau, President of the Quebec Forest Industry Council 
(QFIC), and Marc Boutin, Director of International Trade at the 
Council.  QFIC represents Quebec's 275 mills, which they say 
generate employment to 150,000 people in the province.   250 
Quebec communities depend almost entirely on the lumber sector 
and the social impact in the regions is enormous.  Lumber is the 
second largest contributor to the Quebec economy after energy. 
 
3.  (U)  The QFIC officials said we are at the terminal phase of 
the legal process, with ninety percent of WTO and NAFTA 
litigation now resolved.  The U.S. lost the first five cases and 
Boutin expected it would lose the sixth.  With this as a 
backdrop, Courteau and Boutin said Quebec's highest priority is 
to prevent a Lumber V.  The province wants a long-term and 
durable solution. Courteau and Boutin conceded that there is 
dissidence among the provinces on how next to proceed.  On one 
end the more cautious (read Quebec) prefer to wait for the 
results of ongoing litigation while others want to return to the 
negotiating table. 
 
4.  (U)  Courteau and Boutin stated that while the U.S. and 
Canada are fighting the softwood lumber battle, South American 
countries, notably Chile and Brazil, are taking over what was 
previously Canadian market share.  European countries such as 
Austria, Germany, Sweden, and now Russia, also have begun to 
move in.  "The enemy is coming in through the back door," said 
Boutin.  He argued that, as a result, U.S. industry is far from 
benefiting from these circumstances.  Nowadays, forty percent of 
Quebec's volume is exported to the U.S., with the rest going 
mainly to the Canadian domestic market, according to the QFIC 
officials.  But before this latest round, they said, Quebec was 
exporting fifty percent of its volume to the U.S. 
 
5.   (U)  The QFIC officials expressed some concern about 
Montana Senator Max Baucus' proposed bill that would have the 
$3.6 billion in lumber duties paid by Canadian companies handed 
over to American forest companies.  At the same time, they 
cautiously reckoned the bill would not be approved by Congress 
although they added, "one must not presume anything." 
Responding to a question from the CG, Courteau said Quebec's 
share of the duties is somewhere between 22-23%, or $700-800 
million. 
 
6.  (SBU)  QFIC officials told us that their U.S. industry 
counterparts have told them that, on the U.S. side, the "big 
guys" want to settle because they are tired of the situation. 
The perception that Canada is using public forests and 
practicing unfair competition is exaggerated and U.S. industry 
knows this, they said.  Our interlocutors told us that anxiety 
is high on the American side and that everyone is waiting to see 
how the Administration will proceed, especially with the 
departure of Secretary Don Evans. 
 
7.  (SBU)  Courteau said Quebec lumber industry officials 
recently briefed federal Trade Minister Jim Peterson.  They 
pressed Peterson to put softwood lumber on the agenda when 
President Bush and PM Martin meet in Ottawa later this month. 
Martin is leading a minority government and as a result, the 
CFIF believes the PM will have to heed industry more than the 
federal government has in the past. 
 
 
 
 
FRIEDMAN