Softwood – It’s the politics stupid!

 

Canadian headlines continue to whiplash back and forth about the status of a potential softwood deal with the U.S. After months of praise and uncritical reporting of the media and industry spin, current headlines are pessimistic about a deal being finalized. I’m not surprised. In fact, back in January I predicted no deal would be forthcoming until 2007. How can I be so certain? Well, to twist the famous line from James Carville, former Bill Clinton political adviser and aw shucks pundit-It’s the politics stupid!

Weak federal governments and internal political tensions on both sides of the border will likely scuttle any deal.

Why?

For three interrelated reasons:

  1. Stephen Harper’s minority Conservative government cannot afford to alienate Ontario, British Columbia or Quebec, who hold conflicting views on the best tactics and terms needed to negotiate away the long-standing conflict. The terms of any offer acceptable to the players in the U.S. would expose fundamental differences between the industry and governments of key Canadian softwood exporting provinces.
  2. The political benefits to Bush’s Republicans of imposing a negotiated deal on the various regional groups in the U.S. softwood industry are miniscule compared to the potential political costs.
  3. The two sides are too ideologically entrenched in their positions. The Americans are convinced that the almost criminally low stumpage in Canada, especially BC, is a subsidy. The Canadians believe the U.S. is a trade bully and the dispute is all about market share. And they are both right.

The politically crippled Bush administration is unlikely to squander the political capital necessary to pressure the formidable political forces allied against Canada in southern and border States into a negotiated deal. Especially on an issue like softwood, which most Americans are unaware of.  While closer ties with a Mr. Harper’s government are beneficial on the so-called war on terror, its money and trade that grease the state political wheels, not foreign policy. And, the closer we get to the U.S. mid-term election in November, the less likely a deal becomes.

In Canada, a similar political impasse has developed. Stephen Harper’s quest for a majority in parliament means that he can’t play hardball with the timber industry or governments of British Columbia, Ontario and Quebec. And since they each have completely different perspectives on acceptable terms for a deal, major political capital would have to be expended.

Frankly, the Conservatives have moved farther on softwood than I anticipated, primarily because the feds took a more active aggressive role than the federal Liberals, whose main tack was to act as a gatekeeper for provincial and industry negotiators. Controversial Minister David Emerson, the former CanFor CEO, was able to trade on his industry contacts to get Canadian softwood manufacturers to tentatively accept terms that would have been non-starters under the federal Liberals.

But at the end of the day, politics will once again sabotage Canadian unity and the tentative deal. A minority Conservative government will have difficulty forcing the various industry and provinces to accept terms that will create winners and losers across the country.

Thus the political calculus on both sides of the border is easy: no political upside, lots of scarce political capital needed, equals no deal.

So don’t count on a softwood deal until the federal governments on each side of the border have the political muscle to reign in their disparate provincial/state counterparts.

Or until the Canadian governments and industry agree to negotiate legal and policy reforms that would address the driving force antagonizing the U.S.- the low stumpage issue.

Tariffs, export taxes, quotas and litigation will continue as long as over 36% of British Columbia’s forest is being logged and the wood sold at $0.25 per cubic metre (telephone pole sized tree).

And if by some miracle, a softwood deal is finalized before the New Year, then follow the money because governments on both sides of the border will have had to buy off the inevitable regional, state and provincial losers that have had to accept onerous terms.

Don’t hold your breath about an imminent deal. I won’t, despite the headlines.

 

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