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courage is contagious
Viewing cable 06OTTAWA902, SOFTWOOD LUMBER: COMPANIES URGE RETURN TO TABLE
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
06OTTAWA902 | 2006-03-29 13:01 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Ottawa |
VZCZCXYZ0008
RR RUEHWEB
DE RUEHOT #0902/01 0881301
ZNR UUUUU ZZH
R 291301Z MAR 06
FM AMEMBASSY OTTAWA
TO SECSTATE WASHDC 1944
UNCLAS OTTAWA 000902
SIPDIS
SENSITIVE
SIPDIS
PASS USTR FOR MELLE, MENDENHALL, CHANDLER
E.O. 12958: N/A
TAGS: ETRD CA
SUBJECT: SOFTWOOD LUMBER: COMPANIES URGE RETURN TO TABLE
REF: (A) OTTAWA 311; (B) VANCOUVER 358
¶1. (SBU) Summary: Major Canadian softwood industry
officials tell the Embassy that they are pushing the Harper
government for a quick restart of lumber negotiations, and
advising Canadian officials not to waste time trying to
reach full consensus in the industry. The officials
understand that B.C., Ontario and Quebec are working with
the Canadian government on the parameters of a deal. They
would like to see a long-term agreement that would avoid
another round of disputes ("Lumber V") -- and expect a
solution to the softwood lumber problem to be highly
complex. End summary.
¶2. (SBU) On March 24, Charge d'Affaires, Econ Minister-
Counselor and Econ Officers met with officials from
Weyerhaeuser, Canfor and Abitibi Consolidated (protect), who
together represent a significant proportion of the Canadian
lumber industry and have operations throughout the West,
Ontario and Quebec, as well as in the U.S.. The company
executives were in Ottawa to lobby Cabinet ministers in the
run up to the March 30-31 Leaders' NAFTA Meeting in Cancun;
they told us they are staking their hopes on the POTUS-
Harper meeting to kickstart a new lumber negotiation.
Message: Just Do It.
-------------------
¶3. (SBU) The industry officials told us what they are
telling Canadian ministers: we have a short window of
opportunity, before the November 2006 U.S. Congressional
election campaign and a Canadian Parliamentary election
which could take place relatively soon, to conduct (in the
words of Trade Minister Emerson) "swift and efficient
negotiations" to reach a deal. They are encouraged by a
perceived moderation in tone among U.S. industry and
consumer players at the recent Senate Finance Committee
hearings and heartened by the US-Mexico settlement on
cement, the other iconic NAFTA trade dispute. Echoing
earlier industry comments (reftel), they say that
governments should not wait for full industry consensus on
either side, and that the time for big industry
consultations has passed. Their companies are prepared to
step back from day-to-day involvement in talks; in their
view, governments should cut a deal and ignore the
inevitable opposition from individual firms since no deal
will satisfy everyone. In their view the government needs
to reach a settlement quickly because it cannot afford a
renewed provincial schism among B.C., Ontario and Quebec.
They believe the message is falling on receptive ears in
Ottawa, although the new Harper government is still
struggling with staffing issues.
But Not At Any Cost
-------------------
¶4. (SBU) Nevertheless, the forest industry officials
stressed that there are limits to what industry will accept.
Any deal has to recognize the current status quo, factoring
in both the stronger Canadian dollar over the past two years
and the "legal environment," (the results of the NAFTA
dispute settlement process and ongoing litigation) Also,
any lumber deal cannot "discriminate against one province"
(presumably meaning B.C.). They also suggested (also a
recurring theme) that U.S. industry would also have to
become more realistic in its expectations for a deal.
Where Are the Provinces?
------------------------
¶5. (SBU) In response to a question about provincial
politics, the industry executives said that B.C., Ontario
and Quebec Premiers Campbell, McGuinty and Charest have been
consulting closely and have made a joint approach to the
federal government on elements of an acceptable agreement.
Alberta, the fourth biggest lumber producer, still hasn't
come to the table at the political level but Alberta
come to the table at the political level but Alberta
officials are participating in technical meetings.
¶6. (SBU) The executives were somewhat defensive about the
March 24 announcement by the Province of Quebec of new
proposed aid to forest products companies of over 900
million CAD in the next four years. They argued, among
other things, that forest operations in the U.S. in some
cases receive similar support from state governments. We
took the opportunity to remind them that this package, like
the previously announced Ontario and federal government
assistance packages, made it more difficult to make the case
for resolving the issue.
Elements of a Deal
------------------
¶7. With the disclaimer that they have no "specific
conclusion" on what a deal should include, the industry
representatives floated various thoughts on the key elements
of a settlement. First of all, they expect any agreement to
be quite complex, given the number of elements in play, but
urged governments to avoid trying to "re-construct the
forest sector." (Comment: this implies that wholesale
changes in stumpage and other provincial practices would be
unlikely to be on the table. End Comment) They would like
to see a long-term agreement, e.g. at least seven years in
duration, in order to allow Canadian firms to adapt to the
structural shifts now underway in the industry and the
looming effects of beetle kill in B.C. They thought that
some of the ideas floated during previous bilateral
discussions last November should be revived, such as
elements on market share and volume and some kind of a floor
price mechanism that would avoid oversupply and wild
downswings in price as housing starts fall in the U.S. With
regard to market share, one industry representative proposed
that any market share percentage should be based on total
imports into the U.S. lumber market rather than Canadian
imports, giving the Canadians a chance to compete directly
against Europeans and other new entrants that have snapped
up U.S. market share. On the touchy question of deposits,
they only said cautiously that "something could be done."
They clearly expect that a "large portion" of the deposits
would eventually be returned to Canadian companies. They
also repeated the call for a binational panel to oversee the
agreement.
The Future of the Canadian Forest Industry
------------------------------------------
¶8. (SBU) The industry representatives also offered their
thoughts on the future of the Canadian industry. Beetle
kill (ref. B) is a critical problem for operations in the
B.C. interior; existing mills will increasingly wind up
being surrounded by dead trees and the cost of hauling logs
from ever-more distant living stands will skyrocket.
Everybody expects the forest products sector to be
consolidated into fewer, bigger companies, but with a trend
away from integrated forestry operations (because capital
demands are "too significant") towards companies
concentrating on specific product lines; e.g. spinoffs of
pulp production, under pressure from fast-growing Southern
Hemisphere imports. For instance, Abitibi is developing a
market niche in dealing with recycled paper. Increasingly,
Canadian forest producers see a future in the energy sector,
possibly replacing lost pulp and paper exports with
electricity exports to the U.S. market. (Comment: Ontario's
recent announcement that it will pay subsidized rates to
alternative energy producers suggests that provincial
officials, faced with serious structural adjustment problems
in forest communities, are likely to encourage this
development. End Comment.)
WILKINS