Hard feelings up north over softwood trade pact

WASHINGTON — The United States and Canada announced an agreement Thursday to settle a drawn-out, heated trade battle over softwood lumber, a major home-building component.

The U.S. timber industry said it could support the accord. But Canada's Parliament exploded in emotional debate, with vehement opposition from some producers and political leaders threatening to quash the agreement.

The accord was announced late Thursday at a joint U.S.-Canada news conference at the Canadian Embassy in Washington.

"This agreement is an historic opportunity to resolve a dispute that has lasted for more than two decades," U.S. Trade Representative Rob Portman said.

Canadian Trade Minister David Emerson called the deal "a watershed moment" in trade relations between the two nations.

Separately, Canada's prime minister, Stephen Harper, told a standing ovation in the House of Commons, "Canada's bargaining position was strong; our conditions were clear; and this agreement delivers."

But Bill Graham, opposition leader of the Liberal Party in Canada's Parliament, quickly shot back that it was only good news for the U.S. lumber industry and that the North American Free Trade Agreement, whose mediating panels have often ruled in favor of Canada, had lost its teeth.

"Unfortunately, it's a great day for American industry, for American policy and for American trade — and it's a disaster for Canada and free trade," Graham said.

Harper insisted, however, he had the backing of the key lumber-producing provinces of British Columbia, Ontario and Quebec.

Harper took office in February as the Conservative Party returned to power for the first time in more than 12 years. He has sought to resolve the bitter dispute straining U.S.-Canadian relations for at least two decades.

Aboard Air Force One, en route back to Washington from the Gulf Coast, President Bush spoke with Harper, according to White House press secretary Scott McClellan. The two leaders congratulated each other on bringing the long-running dispute to an end, he said.

Bush administration officials said the fate of the deal would depend on industry support in both countries.

A similar agreement was reached in 2003 but fell apart after some Canadian provinces balked.

Neena Moorjani, a spokeswoman for Portman, said approval could bring stability to the North American lumber market while rejection could mean "many more years of litigation, acrimony and market uncertainty.

In a statement, the Coalition for Fair Lumber Imports, the U.S. industry group leading the fight against Canadian imports, said it could support the terms as U.S. officials have described.

Canada's $10 billion in annual shipments to the United States of softwood lumber, which comes from pine and other trees, represent about one-third of the U.S. market. The dispute stemmed from U.S. complaints that Canada subsidizes its timber industry by letting companies pay far less than market value to harvest trees from Canada's vast public forests.

U.S. tariffs on the Canadian lumber started at an average 27 percent in 2002 but now average 11 percent because of reviews and trade rulings.

Canada's share of the U.S. market would not exceed 34 percent, according to published descriptions of the agreement. To protect American producers from a drop in prices, Canada would impose an export tax of as much as 15 percent, depending on the market price of lumber.

Harper said the deal would lift tariffs and quotas, and mean that $4 billion of the $5 billion in penalties collected by the U.S. on softwood imports from Canada since 2002 would go back to Canadian producers.

Canadian opponents of the deal want all of the tariffs returned to Canadian lumber companies because international trade panels repeatedly have ruled the U.S. penalties improper.

If the agreement holds, analysts said Americans buying new homes probably should not expect a price break from the deal.

"This is all organized to keep competition down and prices high for U.S. producers," said Gary Hufbauer, an economist at the Institute for International Economics, a Washington, D.C., think tank.

Said Jerry Howard, executive vice president of the National Association of Home Builders: "For an administration that espouses free trade, there is no logical reason to ... engage in one-sided negotiations that would provide a massive subsidy to the U.S. timber industry at the expense of millions of American consumers."

Associated Press writers Beth Duff-Brown in Toronto and Matthew Daly in Washington contributed to this report.