Audio Who's getting gored? The duty's effect on the U.S. economy The Coalition's objective 'is very clear' Canadian resentment toward the U.S. The Canadian government's lack of support What happens next? 'I'm going to fight for my rights'

Bill Lurz: I'm speaking to Frank Dottori, CEO of Tembec, one of Canada's largest lumber producers, and also the co-chairman of the Free Trade Lumber Council in Canada. Frank, briefly go over what it is about the industry in Canada that makes it different from the United States and how those differences have led the U.S. government to conclude that Canadian producers are receiving an unfair trade advantage.

Frank Dottori: I think there are more similarities than differences. We all compete in the same North American market, where Canada supplies 30% to 35% of the volumes. I think there are more private lands held by big insurance companies and big corporations in the United States than there are in Canada. In Canada, the private lands being held by companies like ourselves is a much smaller proportion.

And, of course, we have different trees. We have different public policies. In Canada, the industry has to build all the roads and do the reforestation and is susceptible to all of those charges, while in the United States a lot of it is handled by the state or through government infrastructure rather than through the private infrastructure we have to provide.

BL: Give us your perspective on this trade dispute that's been going on for the last six months or so.

FD: Actually, it's been going on for 20 years. Since 1982 and at five-year intervals, it goes on and it usually rears its head during a period where we come through strong economic growth. [After a drop in growth] the people who are suffering tend to feel the competitors are doing something wrong. Particularly, in a protectionist environment the tendency is to look for people to blame.

In the U.S. Southeast there was a pretty significant expansion, probably 5 to 6 billion feet, a couple of years back when the prices of lumber were over $400. There was a big push in buying timberlands by the big insurance companies and [other] big companies. They bought a lot of property at thousands of dollars an acre. And there were a lot of sawmills that were built that needed all this wood to fund their new investments and capacity, and they signed some long-term contracts. Now the prices of lumber have dropped and they're caught with these high-priced saw logs.

In Canada, because of our system, we didn't get caught with that. Obviously, it gives us some economic advantage at this time. In addition … it's a real problem for American manufacturing to compete because of the strength of the U.S. dollar. All of these factors are being used to claim that Canada's being subsidized, which has been proven to be wrong three times in the past and is wrong again.

BL: Just delineate those cases if you will. Those were World Trade Organization, NAFTA, or what?

FD: They were NAFTA decisions, and they were decisions of international trade commissions between Canada and the United States, where the Americans - last time it was the Northwest producers - claimed subsidies. They went to a tribunal and the tribunal ruled that there were no subsidies. Under the U.S. trade laws, the U.S. government must defend U.S. producers. Even though [the United States] lost, Canada made some concessions one time, basically, with taking an export tax just to try to put the thing behind us. The second time they agreed to a quota.

BL: That's the Softwood Lumber Agreement?

FD: Yes, and that expired about two years ago. If you look at the business, it's operated pretty well. Prices are up, things are running well over the past few years. There's just too much capacity. It's supply and demand. So what we're doing is trying to put in artificial measures which restrict one producer or another producer. But there needs to be a rationalization of the North American lumber production because there's been 6 billion feet of extra production out of the United States. There are 2 or 3 billion being imported from Europe because of the strength of the U.S. dollar. So there's too much supply.

The question is, who's going to get gored in this industrial dispute? I think that's really the fundamental issue. My focus on it would be … instead of trying to stick the customer with $3 billion of extra costs, we should take that money that we're spending on lawyers and fees and we should go out and promote a 10% increase in lumber consumption and attack the plastic and steel that's displacing us.

Because wood is the most environmentally sound project. I think we're going down a misguided strategy, but I haven't been able to sell it. So what am I doing? I'm trying to defend my company against what I consider to be unfair charges. ( Listen. )

BL: So you've filed a suit against the United States government, is that right?

FD: That is correct. Under Chapter 11 of the free trade agreement [NAFTA], it says under clauses 1102 to 1105 that the U.S. must give Canadian and Mexican investors equal opportunity in the most favored nation treatment - the same treatment that the U.S. government gives China. We think we deserve it. We're the U.S.' best friend.

BL: You have an ally in American home builders, obviously, because the NAHB has analyzed the situation and come to the conclusion that this 27.2% duty on imported Canadian lumber will add an extra $1,500 to the cost of the average single-family home.

FD: Take it from a U.S. perspective. We ship $10 billion worth of lumber into the United States. Put a 27% tax on it and you're talking $2.7 billion that's going to be taxed on to the U.S. consumers, maybe at $1,500 to $2,000 per home. We believe that housing starts will drop dramatically over the rest of the year as a consequence of this.

At the end of the day, what are Canadians going to do? The price is going to go up. Ten percent of our industry is going to get wiped out, which is a travesty in the free trade agreement. At the end of the day, even when that happens, the consequence will be the U.S. consumer who's going to pay. It's a hidden tax, and we think that just when you're starting to get some rebirth in the economy, you don't need a $2.5 billion hit in the U.S. economy. ( Listen. )

BL: Am I wrong in my assessment that the goal of the Coalition for Fair Lumber Imports -- the producers who initiated the claim against the Canadian imports -- seems to be using this as a tool to force negotiations on another softwood lumber agreement of a similar nature to the one that expired?

FD: Sure, the objective is very clear. This stuff about this idea that we've got to drop an American system in Canada… You know that anyone with a bit of brains in their head knows that's not going to happen. I'd like to see Florida go and tell Louisiana how to run their forest operations and see how that sells. You're not going to come and tell Canada, a foreign, independent country, how they are going to change their political system because some lumber producer down in Georgia doesn't like it. The sole purpose of this is to try to put the Canadian industry in a very difficult position with the help of the U.S. government's protectionist measures to basically shut down about five billion feet of Canadian supply. The only way you're going to do that is by whacking it with a high enough barrier to drive the prices up in the U.S. ( Listen. )

BL: I get the impression that from reading some of the press in Canada on this subject that the Canadian government this time around does not feel inclined to being pushed into another SLA-type agreement immediately, at least.

FD: I think that's the feeling in Canada, that we're being bullied. We're saying that if it's free trade, it's free trade. How can it be free trade for what suits me and not free trade for everything else? It's not fair. So there's a lot of Canadian resentment, saying: "Maybe we should put a 27% tax on energy as well and see how the Americans like that one. If they want our energy, then maybe we'll jack that up 27% too and then we'll put lumber on the same basis."

That's a dumb way to go around it. Like I said, the solution is to promote the consumption of wood. That's constructive. Otherwise, it's you kick me and I'm going to kick you, and where does it stop? ( Listen. )

BL: Are you getting the support you need from the Canadian government?

FD: No, we're not, because under the U.S. trade law, the U.S. government must defend U.S. manufacturing interests. A lot of people are picking on President Bush, particularly here in Canada, but he has to follow U.S. law. And under U.S. law, the Department of Commerce must defend their industry. Canada does not have such legislation, so it's a whim of our government. If we can convince them to do so, they will, but they don't have to. That's a problem for us. Our government is faced with a bit of a predicament.

Forestry in Canada is a provincial issue, not a federal issue, but trade is a federal issue. So we have provinces that want to negotiate because they feel vulnerable. It's hard to get a national position, especially when it isn't federal authority. ( Listen. )

BL: Barry Rutenberg said that he heard rumors that Canada would try to pull together a public relations campaign to take its case to the American consumer directly. Is there anything of that nature underway?

FD: Yes. Yesterday, the federal government announced that they're prepared to invest $20 million in an advertising campaign to demonstrate that Canada is not being subsidized and that it's the consumer who's going to end up paying the bill at the end of the day. We believe that certainly the response from the American home builders and from the American public and potential home buyers has been very muted against the powerful industrial interests that are trying to put in the protectionist measures. I think the objective of this is to make the public aware of the real facts in this dispute and hope that there's some stronger public support in the United States for fair trade and free trade.

BL: What's your best assessment of where this thing will go?

FD: I can tell you that my company intends to fight until the end. We believe the right solution is a negotiated settlement, but not one that involves Canadian surrender. If it's a negotiated settlement that's positive in saying, "Let's put some money in developing lumber uses." But I am not going to agree to a tax. I am not going to agree to penalize my consumers. I want my American customers to get a competitive price and I will not agree to any penalty that will penalize me as a North American supplier to that market. I'm going to fight on, and I will go if it takes me one year, two years or three years. I intend to be there when the court decision comes out because I know I'm innocent, so I ain't going to jail. I know I'm innocent. ( Listen. )

BL: You wouldn't take the SLA agreement that you had before?

FD: Absolutely not. Absolutely not. I'm going to fight for my rights. If, in the mean time, the rest of the industry or some of the industry -- I know some of them want to surrender - I would expect the Canadian government to stand behind me just like the American government is standing behind the U.S. producers. I'd expect my government to stand behind me and defend me, but if they don't, I shall fight on alone because I think this is like fighting for justice.

I think what we should do is hang tough and have a preliminary ruling from the WTO in July. I think they will rule in our favor, that the U.S. is using illegal means both in U.S. law, which they are, or under international law, like zeroing under antidumping is illegal. It's illegal under any trade act. And we're using that, so we know it's going to rule in our favor. ( Listen. )

This will weaken the U.S. coalition. We hope the U.S. consumers are going to react. We hope the U.S. builders will talk to their members of Congress or write to their senators and say: "Hey, wait a minute, look at who you're goring here. This is supposed to be a free market." If we get that kind of political support I think we can sit down at the table sometime in September and negotiate a good, long-term agreement to put this behind us once and for all. Between now and then, I don't think there's any chance of an agreement with the coalition, because right now they have the upper ground and they would force us into a surrender.