With the end of one court battle in the cross-border softwood lumber dispute coming as soon as April, Tembec business development manager Paul Krabbe, who has been “very close” to the case for over four years, is looking forward to a level playing field from which to negotiate. He spoke with Northern Ontario Business editor Craig Gilbert in February about the far-reaching implications of the case.
How do you get to that level playing field?
We have to be extremely aggressive. My view has always been that the legal cases and the legal process will get us down to a level playing field from which we can fairly negotiate a long-term agreement on softwood lumber. But you can’t negotiate when Canadians are staring up at 27 per cent duties and they are staring down at us from that high hill. The legal process will get us to the point where we’ll learn this case has no basis ... for injury to the U.S. industry ... or for a threat of injury. The courts have already found that out. They’re just throwing legal roadblocks up.
I think we can live together with the United States. We produce products the U.S. needs and wants. There is a very strong, very politically connected coalition of landowners, largely, that uses the sawmill owners as their front men as they try to drive timber prices beyond normal market levels in the U.S. They want to do that by restraining Canadian access to their market.
What role does industry want Ottawa to play?
If it had been a fair legal process fight over a legitimate issue, then fine. Maybe the industry can bear those costs. But it isn’t a fair fight, it’s a political fight and we have to fight back with politics. The Canadian government should assist in financing this.
Why should the Canadian industry bear the full brunt of the political fight?
That would send a message back to the United States that Canada is behind the industry in many ways. They (would be) behind us in terms of making sure we don’t drop out from legal exhaustion.
How real is the threat of that happening?
There are some small industry players that these duties are very hard on. People have had to change their business. Everybody seems to be hanging in, but it’s one more cost for us to bear. They aren’t insignificant. The costs are tripling per year as we get into these very complex court cases.
We’re nowhere near that situation at this point, but it has been a long-standing request. Pierre Pettigrew achieved that for one year, but it’s dried up. Why wouldn’t you do that in future years?
How so?
They’ve said we’re not going to give the duties back, well, that’s not the North American Free Trade Agreement (NAFTA) document Canada signed. Why should the industry have to pay the huge legal bill to force the U.S. to live up to its NAFTA obligations?
Could you go over the various facets of the legal challenges going on right now?
Last September, the United States Trade Commission issued a final determination that says there is no threat of injury. When there is no threat of injury to the U.S. industry, there is no legal basis for them to continue to collect anti-dumping and countervailing duties and there’s no legal basis for them to withhold the deposits. The U.S. industry and the U.S. International Trade Commission went and appealed to an extraordinary challenge committee. What they’ve said is they have some problems with the NAFTA panel that came to this no injury finding. They feel one panelist brought bias to this matter. They also felt the panel exceeded its authority in telling them how to run the case and how to make the findings they did, notwithstanding that the World Trade Organization (WTO) looked at the same evidence and came to the same conclusions.
So what is the point in all these challenges?
What they’re doing brings 6-8 months of delay to the process. It allows the U.S. to continue to collect duty deposits and continue to restrict Canadian trade. We’re very hopeful on the outcome. There is no basis for the extraordinary challenge, it’s just a delay tactic.
We believe the NAFTA panel’s final ruling will be upheld.
This spring, then, could see the evaporation of any legal justification for collecting and withholding the duties.
If we haven’t seen lawlessness yet, we will see it in a big way in the future. That, at least, is what Grant Aldonas, outgoing undersecretary of the Department of Commerce, is saying.
But you mentioned there are other legal challenges happening now as well.
The remaining two cases concern the countervailing and anti-dumping duties, respectively.
They originally started collecting 18.79 per cent duty deposits.
Based on a previous duty, the NAFTA panel recalculated and announced the duty should be about 1.88 per cent.
That is billions of dollars they have over-collected where they’ve been informed by a group of fair-minded trade experts, which is what the NAFTA panel itself is, have instructed them.
Even at 1.88 per cent the United States have disagreed with the NAFTA panel so we think it should be properly calculated below one per cent. So this whole trade case is about subsidies of less than one per cent. In U.S. law, less than one per cent is diminimus, which is too small to be of any importance. So it shows they have calculated very high numbers as a goal to get Canadians to negotiate and cave to a very bad deal.
In December they looked at actual subsidies and all shipments et cetera and they came out with 17.18 per cent ... ignoring everything the NAFTA panel told them should have been done.
The other case is the dumping case. It’s similar. There is a major issue that was won at the WTO called zeroing. The United States continues to ignore profits on sales you make into the U.S. So it is guaranteed that it doesn’t matter what you sell, toothpicks or lumber, if someone brought a dumping case and they apply zeroing chances are high and likely you’re going to find dumping. It’s not a fair comparison.We still need to follow a legal process, but zeroing eventually has to go. The United States of course will do everything it can to not let it go, but it is, as a result of this case, and many other countries are watching, we’re going to see a fair bit of relief when it comes to dumping.
Has the process changed the Canadian industry?
On the negotiating front, I think the Canadian industry is really coalescing around the legal wins, I think there was a very divergent view back in 2001-02 about the legal prospects.The Canadian industry is convinced they’ve won the case. Certainly you can see it in the marketplace, which has pretty much figured out the industry is going to win the case.
Tembec’s view is we’d like a negotiated settlement, but we’ve got to negotiate fairly. The Canadian industry is talking amongst itself much more than we used to. The fact is the industry is very different across Canada so we’re all going to have to work very hard to find a common approach that works for eastern Canada, western Canada, mills on the border and mills in the far North. We have to be creative. Over the next month there will be meetings with the U.S. coalition where we’ll get a sense of where they are and their expectations. We’re getting mixed signals from them now.
