The big holdup in a Canada U.S. lumber deal? Russian, German, Brazilian wood

Canada and the United States must chop down one big, remaining impediment to a deal on softwood lumber and this obstacle involves wood from neither country but from other places: Germany, Sweden, Chile, Brazil and Russia.

This irritant over distant imports is complicating the goal of a quick softwood agreement, something both North American governments say they want to achieve in order to start NAFTA talks in two weeks without a major trade irritant looming overhead.

This sticking point involves third-country imports. More specifically, it’s about who gets to fill the U.S. demand for lumber in the event of a hot construction market like the present one, when American supply falls short.

The two governments have already agreed to split the U.S. lumber market by percentage. According to Canada’s ambassador to Washington, Americans would supply around 70 per cent; Canadian imports would be capped around 30 per cent, which falls somewhere in the historical average.

“There’s a lot more detail than that,’’ ambassador David MacNaughton said in an interview, saying the numbers would be affected by other variables.

“But roughly speaking, it’s a 70-30 split.’’

Where the third-country problem occurs is when the economy booms, demand soars and American mills can’t meet their 70 per cent, agreed-upon share.

In such an event, Canada is adamant that the agreement should contain what’s called a hot-market provision. There are different ways to design it. One example appears in a sugar deal struck between the U.S. and Mexico this June _ if the U.S. seeks additional sugar imports, Mexican suppliers would get a right of first refusal.

But the basic point is to allow Canadian exporters to surpass that regular cap of 30 per cent, rather than have other countries fill the gap. Other countries, including Germany, Sweden, Chile, Brazil and Russia, currently supply a minuscule share of U.S. imports.

MacNaughton said it makes little sense for Canada and the U.S., to strike a deal that shifts production to other countries. This issue, he said, is a key barrier to an agreement.

“I don’t see any reason (for not getting a deal),’’ MacNaughton said.

“We should be able to reach an agreement. The ball is in their court. We have made clear we are prepared to manage to a market share _ which is what they asked. We’re just waiting for them to come back, and say yes . ...

“The issue that is outstanding at the present moment is when there is a hot market . ... It’s got nothing to do with putting people out of work in the U.S. It’s got to do with making sure we’re not having mills idled in Canada in order to create jobs in Russia and Brazil.’’

In sharing some details of the ongoing negotiations, which to date have generally been tightly guarded, MacNaughton was responding to what he called misinformation being spread around Washington.

He accused the U.S. lumber lobby of disseminating the false idea that Canada won’t accept a quota: “That’s simply not true.’’

That sentiment was reflected in a letter last week from U.S. senators, who urged a cap on Canada’s share of the market. Their letter echoed the language used by the U.S. lumber lobby _ which demands what it calls a “clean quota.’’