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Cablegate: Quebec Lumber Industry On Softwood State of Play

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS QUEBEC 000202

SIPDIS

DOC FOR JIM TERPSTRA
USTR FOR SAGE CHANDLER
DEPT FOR WHA/CAN AND EB/TPP/BTA

E.O. 12958: N/A
TAGS: ETRD EIND CA US
SUBJECT: QUEBEC LUMBER INDUSTRY ON SOFTWOOD STATE OF PLAY

SENSITIVE BUT UNCLASSIFIED -- PROTECT ACCORDINGLY

1. (SBU) Summary: Post recently met with Quebec lumber
officials who told us the Province's first priority is to head
off a Lumber V and carve out a permanent solution to the
bilateral dispute. They argued that American industry is not
benefiting from the U.S.-Canada softwood lumber dispute as Chile
and other South American and European countries are "coming in
through the back door," occupying a share of the market
previously held by Canadian companies. Quebec lumber officials
say Quebec Province is in agreement with other Canadian
provinces on the overall principles of a resolution but there is
still no consensus on a reengagement strategy. Quebec lumber
industry officials recently met with federal Trade Minister Jim
Peterson and urged that softwood lumber be on the agenda when
President Bush and PM Martin meet in Ottawa later this month.
End Summary.

2. (U) On November 17, Consul General checked in with Georges
Courteau, President of the Quebec Forest Industry Council
(QFIC), and Marc Boutin, Director of International Trade at the
Council. QFIC represents Quebec's 275 mills, which they say
generate employment to 150,000 people in the province. 250
Quebec communities depend almost entirely on the lumber sector
and the social impact in the regions is enormous. Lumber is the
second largest contributor to the Quebec economy after energy.

3. (U) The QFIC officials said we are at the terminal phase of
the legal process, with ninety percent of WTO and NAFTA
litigation now resolved. The U.S. lost the first five cases and
Boutin expected it would lose the sixth. With this as a
backdrop, Courteau and Boutin said Quebec's highest priority is
to prevent a Lumber V. The province wants a long-term and
durable solution. Courteau and Boutin conceded that there is
dissidence among the provinces on how next to proceed. On one
end the more cautious (read Quebec) prefer to wait for the
results of ongoing litigation while others want to return to the
negotiating table.

4. (U) Courteau and Boutin stated that while the U.S. and
Canada are fighting the softwood lumber battle, South American
countries, notably Chile and Brazil, are taking over what was
previously Canadian market share. European countries such as
Austria, Germany, Sweden, and now Russia, also have begun to
move in. "The enemy is coming in through the back door," said
Boutin. He argued that, as a result, U.S. industry is far from
benefiting from these circumstances. Nowadays, forty percent of
Quebec's volume is exported to the U.S., with the rest going
mainly to the Canadian domestic market, according to the QFIC
officials. But before this latest round, they said, Quebec was
exporting fifty percent of its volume to the U.S.

5. (U) The QFIC officials expressed some concern about
Montana Senator Max Baucus' proposed bill that would have the
$3.6 billion in lumber duties paid by Canadian companies handed
over to American forest companies. At the same time, they
cautiously reckoned the bill would not be approved by Congress
although they added, "one must not presume anything."
Responding to a question from the CG, Courteau said Quebec's
share of the duties is somewhere between 22-23%, or $700-800
million.

6. (SBU) QFIC officials told us that their U.S. industry
counterparts have told them that, on the U.S. side, the "big
guys" want to settle because they are tired of the situation.
The perception that Canada is using public forests and
practicing unfair competition is exaggerated and U.S. industry
knows this, they said. Our interlocutors told us that anxiety
is high on the American side and that everyone is waiting to see
how the Administration will proceed, especially with the
departure of Secretary Don Evans.

7. (SBU) Courteau said Quebec lumber industry officials
recently briefed federal Trade Minister Jim Peterson. They
pressed Peterson to put softwood lumber on the agenda when
President Bush and PM Martin meet in Ottawa later this month.
Martin is leading a minority government and as a result, the
CFIF believes the PM will have to heed industry more than the
federal government has in the past.


FRIEDMAN

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