SOFTWOOD LUMBER: ATLANTIC PRODUCERS' VIEWPOINT

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
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