Stand up to the U.S.

Reuters

Taxes on Canadian softwood have been used to develop a new tax.

Renewed softwood war looms over new tax

By Richard Garneau

From May 23 to June 10, 2011, softwood lumber producers and importers in the United States will be canvassed through a referendum organized by the U.S. Department of Agriculture to get them to agree to a tax designed to increase softwood lumber usage in the United States. A majority of the 595 U.S. producers and 883 U.S. importers of softwood lumber probably will agree to a specific tax designed to fund about US$100-million worth of market research and generic advertising over the next five years, starting in 2012, partly because they will not have to pay the whole bill.

Even though the promotional campaign will be controlled and directed by the U.S. government, Canadian exports to the United States will be taxed at the border to help pay for the American program. Canadians will not vote on whether they want to be taxed, nor have anything effectively to say about how the money will be spent.

The Government of Canada in 2006 collected US$1-billion from the Canadian softwood lumber industry and turned over the money to the United States in order to settle the most recent round of the softwood lumber dispute. Some of that money now has been used to develop this newest plan to tax Canadians and turn over still more money to the United States.

No one in the lumber industry would quarrel with the idea of promoting the use of wood, especially as less “green” materials — such as steel and plastic — have begun to compete successfully with a renewable resource. But who should pay? The designers of the U.S. “check-off program” for softwood lumber have admitted that they could not get the industry to pay voluntarily over a long period of time but they believe that Americans, who will control and run the program, will volunteer to pay part of the bill as long as they can force Canadians, who will have no say, to pay a significant part. After years of accusing Canada of subsidizing Canadian industry (something never proved), the United States, and really the U.S. industry, is coercing Canada to subsidize a program meant to promote the U.S. industry.

This program circumvents NAFTA, which forbids new tariffs at the border, and the trade laws, which provide recourse. Once enacted, there is no legal recourse, at least not under the trade laws. The check-off program is being created under the U.S. 1996 Farm Bill for the benefit of U.S. industry. Benefits to Canadians would be coincidental.

Some $350-million of the $1-billion turned over to the United States in 2006 were supposed to be committed to “meritorious initiatives,” including the promotion of green building materials. These funds remain, five years later, largely unspent and available should there be consensus for a new promotional program. Canadians should not surrender their sovereignty to a unilateral American decision to impose new taxes on Canadians, especially when, however virtuous the purpose, the funds already are available.

Canadian forest industries have been experiencing the most severe economic challenges in their history. While their markets collapsed they have had to pay export taxes for the privilege of supplying the shrinking U.S. market. Now they will be coerced to pay for a U.S. government promotional program designed principally to subsidize their American competitors.

Canada’s newly elected parliament needs to address this important issue in defence of Canadian sovereignty, and the integrity and economic well-being of Canada’s forest industry, which employed 238,000 Canadians in 2009. Canadian politicians ought to declare their opposition to this circumvention of international trade rules.

Financial Post
Richard Garneau is president and chief executive of AbitibiBowater Inc.