Knock on Wood

'Twas no mere rumour. The Prime Minister stood up in the House of Commons today to announce that a deal had been reached with the Americans on the longstanding trade dispute over softwood lumber. According to the PM's website:

The United States has agreed to Canada’s key conditions including:

• Stable and predictable access to the U.S. market: there will be no quotas and no tariffs at current prices;
• Repayment of duties: at least four billion dollars will be paid out to Canadian producers;
• Provincial flexibility: there will be different compliance options in response to varying operating conditions across Canada; and
• Certainty: the deal runs for a minimum of seven years with options for renewal at a later date.

Surprisingly, the PM also announced that the deal had the support of the provincial governments of British Colubia, Quebec and Ontario. Earlier in the week, Ontario's Minister of Natural Resources, David Ramsay, said that his government was "very upset with the deal that's there." Perhaps the third bullet point about provincial flexibility was enough to placate him. Regardless, the three major lumber-producing provinces were basically the only ones who could have gotten the deal scuttled at this point. Chalk one up for Stephen Harper.

There is surely some cause for celebration. The softwood lumber dispute has been a sour note in an otherwise good working relationship. With this out of the way, relations between the two countries should become more cordial, as befits the friendship that our countries share. Also, the mere fact that there is a deal now - any deal - will save a lot of grief for the Canadian lumber industry since they lose out the longer the argument simmers. On top of that, with the trend suggesting that the loonie will continue to rise against the dollar, the collected duties currently being held by the U.S. will end up being worth less the longer it takes to get them back.

That being said, there are plenty of reasons to complain. Canada may be getting $4 billion in duties returned, but that leaves $1 billion in the U.S., an amount which will likely end up going mostly to American softwood producers. It's a bitter pill to swallow, but it can be said that a good compromise leaves everybody angry. On the other hand, the first bullet point is a real concern. "There will be no quotas and no tariffs at current prices." What happens if prices change? The details are still murky, but it sounds like CTV got it right when they reported earlier this week that the deal would hold Canada to 34% of the American market. That is roughly what Canada's market share is right now, implying that a quota (or tarriffs) would end up in effect when current market conditions change.

It's free trade, as long as there are no free markets.

I argued before that Canada should not start a trade war over softwood (as Jack Layton suggested during the election campaign) on the grounds that Canada would ultimately lose that battle. But it seems that the government has confused withholding retaliation with capitulating. Canada has lost a few decisions at non-binding WTO tribunals, but has consistently won under legally binding NAFTA tribunals. Canada should have continued along that process, and if necessary, temporarily granting loans to the softwood industry to keep them afloat as the dispute persisted. Accepting anything less than free trade sets a bad precedent.