Canada Urged To Use Electric Supplies To Tighten Trade Screws on U.S.

By Alison Appelbe | July 7, 2008 | 8:19 PM EDT

Vancouver, B.C. ( - A former American CEO is urging Canada to use its energy supplies as leverage in convincing the U.S. to ease its restrictions on lumber imports. America's continuing energy shortage makes the comments of Denver-based Tom Stephens appear all the more threatening.

"I would remind U.S. policy-makers that without Canada's energy, they had better learn to speak Arabic and read by candlelight," Stephens said in a widely reported speech, a not so subtle warning about how a trade war with Canada would force the U.S. to rely even more on the Middle East for its energy needs.

Stephens, former chief executive officer of the Canadian forest firm MacMillian-Bloedel (now owned by Oregon-based Weyerhaeuser), told a forestry conference in Vancouver last week that Canada should protect its $10 billion in lumber sales to the U.S. by threatening to reduce oil, gas and hydro-electric exports if the U.S. doesn't ease its tariffs on lumber imports.

His remarks were delivered as a five-year Canada-U.S. softwood lumber pact is set to expire at the end of March and the U.S. has vowed to re-impose duties of about 15 per cent on lumber imports that exceed quotas.

Most Canadian producers and government officials argue that the duties, based on Canadian stumpage fees, are unfair. They strongly reject the U.S. argument, on which the fees are based, that the Canadian industry is highly subsidized.

However, the prospect of engaging in an all-out trade war that would link lumber with energy was downplayed, if not entirely rejected, by Canadian government and industry officials and media commentators in a flurry of articles and editorials across the country.

"I think it would be unwise on Canada's part," said Dr. David Haley, a forestry economist at the University of British Columbia. "Canada is so dependent on the U.S. -- not just in energy and forestry products, but in many agricultural and other products as well. To use the softwood lumber dispute to escalate a trade war would put Canada in a very poor position ... with the costs to Canada ultimately exceeding the benefits."

The revival of the softwood lumber dispute, which stretches back at least 20 years, comes at a delicate time in the international debate over energy needs. Last January, this province's power authority, B.C. Hydro, which supplies electricity to several U.S. states, provided last-minute power to California during a spate of power shortages.

At that time, a Southern California Edison spokesman said the 11th hour delivery saved the state from several prolonged blackouts. While the province delivered the power with California's assurance it would get paid, British Columbia is still owed roughly $350 million from U.S. energy suppliers.

The larger issue remains President George W. Bush's proposal for a continental energy policy that would include Mexico and draw on Canada's plentiful energy supplies. (Canada now supplies the U.S. with more oil than does Saudi Arabia.)

And while Canadian politicians reject the idea of a trade war over lumber, some, like B.C. Forest Minister Gordon Wilson, also quietly warn that the U.S. can't have it both ways. "You can't, on the one hand, be talking sweetly to get Canadian energy while on the other hand you're slamming the door on the export of Canadian wood," Wilson said.

The Arkansas-born Stephens, on the other hand, did not mince words. "If I were a Canadian, which I'm not, negotiating trade issues with the U.S., I wouldn't let that need for gas be separated from the issue of lumber, wheat, potatoes or any other commodity that the U.S. producers are trying to restrict," he told the conference.

"My message would be simple: If you want a free trade market for energy, then we have to have a free market for other commodities that you want also."

Stephens added that gas from the Canadian East Coast illuminates Boston, and that B.C. gas and power kept California's computers running during recent shortages. "Canada has its hand on the American lights switch," he added.

Canadian experts believe the U.S. duties on lumber punish American consumers but benefit American industry. For example, countervailing duties imposed by the U.S. are said to add about $1,300 to the cost of a new American home and some forest-industry insiders in the U.S. are now believed to be questioning the fairness and value of those tariffs.

"In the last couple of countervail cases, in 1996 and the preceding one, American consumers were remarkably quiet," Haley said. "Yet, I'm told now that there's much more lobbying by the American consumer, and that the Canadian industry is encouraging the American consumer in this lobbying."

Another reason why Canada might avoid getting too riled about U.S. duties is that the B.C. forest industry, and those of the other three provinces covered by the lumber pact --Alberta, Ontario and Quebec -- still do very well by the trade, Haley pointed out. Last year Canada provided the U.S. with one-third of its softwood supply.

If the U.S. re-imposes duties, as U.S. Trade Representative Robert Zoellick has said it will, Canada is expected to file appeals with the North American Free Trade Agreement dispute panel and the World Trade Organization. The current lumber pact between the two countries expires March 31.