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Canadian Politics: Softwood Lumber, The G.S.T., And A Trip To Washington

This should have been a great week for Steven Harper and the Conservative Party of Canada; the hated Goods and Services Tax (G.S.T.) was reduced by one per/cent as a Canada Day present, a deal had been finally reached on the softwood lumber dispute, and he was going to be having his first solo meeting with President George Bush in Washington.

To top it all off his visit will coincide with Mr. Bush's birthday, which will give them a chance to at least present the pretence of a personal friendship between the two leaders. As Mr. Harper is far more of like mind with Mr. Bush then either of the last two Prime Ministers of Canada this is pretty much guaranteed to be a mutual patting of the back, we're doing a great job, type of visit.

The highlight of the forty-minute was to have been the signing of the new trade agreement reached between the two countries around the contentious issue of softwood lumber exports from Canada into the United States. In spite of the North American Free Trade Agreement (NAFTA) the American government has had duties imposed on Canadian softwood imports at the request of the American lumber industry because of what they see as unfair subsidies provided by Canadian governments.

The alleged subsidies have, according to the American industry, given the Canadians an unfair advantage and allowed them to "dump" product on the American market. In other words because the Canadians receive money from their governments they don't have to charge as much as their American counterparts, are able to sell the same product for less money giving them an unfair advantage in competition, thus allowing them to flood the American market with less expensive materials.

The Canadians of course have claimed that everything they have done has fallen within the parameters allowed by NAFTA, and that any duties being charged are unfair. They have fought it out in the various courts and adjudicating processes available for this sort of impasse with inconclusive results. I think decisions now stand at three a piece in favour of both sides, which means the tribunals have been telling them to work it out on their own.

Since 2002 $5 billion dollars has been collected as duty from Canadian companies shipping softwood lumber into the United States and needless to say that's taken a huge bite out of their profits. One of the major reasons this has been so contentious is that Canadian companies want guarantees that they will be getting their money back, and that this won't happen again. There aren't many industries that can afford to take that kind of hit in the wallet, no matter how lucrative they are.

There have been a few false alarms in recent months but finally over the past weekend the Canadian and American negotiators reached a deal. A lot of people suspect pressure was brought to bear on both sides from political masters to have it ready for Thursday's (today's) meeting between the two leaders. Unfortunately signing it and implementing it are going to be two distinct issues.

The first rumbles of disquiet were heard as soon as Canadian industry people started reading through it and found that only an 80% refund of the $5 billion is being offered, and that they must agree to abandon litigating to recover the rest of what's owed them. In order for this agreement to be ratified 95% of of all Canadian lumber companies must agree to that condition.

The President of the British Columbian Lumber Trade Council, John Allen has said that in British Columbia alone there are more than 5% of the companies affected who are refusing to drop litigation until other details of the deal are clarified. They aren't going public with what's bothering them yet, but it appears to focus on not being allowed to make their own decisions on how much they can export at once, and setting provincial timber cutting fees.

However what seems to be making them especially nervous is the fact that after 23 months either country can just walk away from the deal. So the dust could just have settled from the last toss up, a new president takes office and the deal can end. What had originally been promised as peace and quite for up to a decade has now been reduced to less than two years.

It's not just the industry that has problems with the deal British Columbia Minister of Forests Rich Coleman said that his province will have a hard time supporting the agreement unless something is done about the termination clause. Not only does he object to the 23 months, the other major problem is that only if the Americans dissolve the deal will there be a moratorium on actions taken.

If Canada backs out of the deal American industry could have their government immediately start charging duties or take other actions against the Canadian industry, but if the American's walk away from the deal there will be one year where the Canadian industry and government will not be allowed the same leeway. Mr. Coleman says it will be very difficult for his government to support the deal if that is not rectified.

It seems pretty universal among the industry across the country that they are dissatisfied with the length of the agreement. As Guy Chevrette head of the Quebec Forrest Industry Council said: " "We said initially, on April 27, that the price to pay for seven years of peace . . . was $1-billion… Now, it turns out we're stuck with a peace that could be only two years." There aren't many in the industry who consider that a good enough deal.

Now that the opposition parties, Liberals, Bloc Quebecois, and the New Democratic Party (N.D.P.) have had a chance to see which way the wind is blowing from the industry people they have gotten into the act and are calling on the government to reconvene parliament to have a special session to discuss the legislation. Jack Layton, leader of the N.D.P., when making his statement warned Mr. Harper and Mr. Bush that " "Harper's signature won't mean a thing if he doesn't have the backing of Parliament."

One of Mr. Harper's major campaign platforms was that he would cut the hated G.S.T. by seven down to six on any and all goods and services sold in Canada. Ever since its implementation by the former Conservative Prime Minister Brian Mulroney it has been one the most universally reviled taxes in Canada. Anti-poverty groups hate it because it hurts their continuants and conservative groups hate it because they dislike taxes on principle.

Previous governments have made noises about either cutting it or abolishing it, but Mr. Harper is the first Prime Minister to follow through on his promise to do something about it. But at is turns out when the cut went into effect this past weekend nobody seemed to really notice.

The only people this tax relief seems to have any effect on our people who can afford to pay for very expensive luxury items. A one-cent on the dollar reduction in taxes hasn't had people actively beating down the doors of most retail stores. In fact for a lot of smaller retailers who use automated cash machines, it's meant a lot of bother to have their tills re programmed for the minor reduction.

Most consumers seem to be of the same mind as the person who said "that if I can afford to spend $2,100 I can afford to spend $2,121" referring to the after and before prices of the G.S.T. cut. Of course not everybody is taking such a blasé view of the matter. Peter Woolford , vice president of the Retail Council of Canada seems to think that it makes $5 billion dollars in cash available for consumers to be spending instead of sending to Ottawa as tax dollars.

Putting it in those terms I guess it sounds attractive to some people, but how he thinks that by someone saving 2 cents on a bottle of pop is going to make that big a contribution to the economy is beyond me. Will they save up all those pennies to make some big time purchase latter on down the road?

More worrisome to me is what's a $5 billion loss in tax revenue going to force a supposed cost conscious government to cut in the way of spending? Especially with their recent announcement of $15 million on military spending they may start looking elsewhere for places to cut budgets, which means that somebody is going to suffer so in order to allow a few people to spend less money on their luxury items.

The muted, almost cynical, reaction that greeted the early days of G.S.T. reduction must have been a disappointment for Mr. Harper and his people. It seems like they can't even buy affection in some places. Of course that won't be a problem with his meeting with George Bush today. The administration in Washington has made it abundantly clear how much happier they are to have Mr. Harper in power than either of his predecessors.

I'm sure that at least today will go well this week for Mr. Harper after the disappointments of it's earlier parts. One thing he does need to worry about is looking too cozy with Mr. Bush. The majority of Canadians are still not sold on his policy in Afghanistan and tend to blame American influence for Mr. Harper's decision to extend Canada's of duty tour and expand upon the role the troops are playing.

Whether that is true or not is irrelevant, and as a politician Mr. Harper has to learn that appearances are very important. Canadians won't mind if he appears friendly with Mr. Bush, America is after all our closest ally physically and every other way in the book, but they will mind if Mr. Harper looks like he forgets which side of the border he lives on.

There's not a lot that can be accomplished in a forty-minute meeting except to allow for some nice photo opportunities. For Mr. Harper this should have been the icing on the cake of a good week; especially being able to symbolically close the door on one of the nastier trade disputes between Canada and the United States. Now the best he can hope for is that he comes off looking statesmen like in the photos taken of him and his new friend George.

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Comments

The deal Harper has cobbled together in his rush to curry favour with Bush is an appalling one, for the reasons mentioned, and others.

When Harper takes this deal to Parliament, it deserves to be altered. The Bloc, NDP and Liberals have the majority of the seats in Parliament, and it is the duty of their MPs to act in the interests of Canada and their constituents.

If the Liberals allow this deal to go through (either by ineptitude – such as the last budget debacle, or disorganization – due to the leadership campaign absorbing so much of their efforts), then they deserve to be punished by the voters come the next election.

If course, if by their conduct Liberal MPs (especially the contenders for leadership of the party) show that their failure to stand up to Harper on yet another rushed exercise, springs from cowardice, then the voters should take note of this, and not grant them a government minority or majority until they acquire some intestinal fortitude.

This softwood deal is more of a test of the calibre of the Liberal leadership contenders, than of Harper. We have measured Harper, and he is wanting.

Now let us measure the Liberal Party, and see if they deserve the votes of Canadians.

The alternative to the craven New Tory party's capitulation to Bush on the softwood issue is very simple.

The NDP, Bloc and Liberals have the majority votes in Parliament. They could agree to pass legislation which would direct the government to table the following revised proposal with the Bush government:

1. Term - The term should be ten years, with no early termination possible unless both sides agree, and the Canadian government is to agree only if a majority of MPs through a free vote (on a non-party basis) in Parliament for an earlier renewal.

2. Automatic renewals - Renewal period should be for automatic five year periods, unless notice of termination is given by either side 12 months before the end of a term (and the Government of Canada would need a majority vote of MPs to give such notice, through a free non-party vote).

3. Payment - Full payment of the $5 billion (yes, that is right, the amount owed under the applicable laws), plus interest on overdue amounts at 5% p.a..

4. No litigation - American lumber companies to agree not to litigate the settlement.

5. Reaffirmation of NAFTA - American government to reaffirm its commitment to the NAFTA treaty.

6. Failure of US to agree -

a. Should the US government not agree to this proposal, then Canada to continue with litigation.

b. Canadian government to fund such litigation by Canadian companies.

c. If the USA takes steps to penalize lumber imports from Canada due to failure to reach agreement as above, the Canadian government is to appoint a Royal Commission with a mandate to review what steps should be taken by the Canadian government to uphold the NAFTA, including whether to terminate the NAFTA (what is the point of an agreement with a government which does not honour its commitments?).

d. Royal Commission to report by February 28 2007.

e. Canadian government to review the findings of the Royal Commission and take such steps as the majority of MPs agree to through a free non-party vote.

f. Canadian government would use taxpayers money to assist Canadian companies who needed assistance due to the non-payment by the Americans of the debt they are refusing to pay.

So, you see: the answer is really simple. All you need is a bit of backbone as the Prime Minister of a country which entered into a treaty with another government in full expectation that the other government would honour its obligations, and not welsh when it suited it.

Our MPs would be in a position where they could reflect the views of their various constituents, as the later votes would be a non-party vote on the issues set out above.

Who will take the lead to stand up for Canada?