Thursday, April 27, 2006


Word on the street is that the Softwood Capitulation is doomed.

I certainly hope so. The compromise on the back taxes would be reasonable IF WE GOT SOMETHING IN RETURN. But we don't: Canadian producers are going to be limited to LESS than their current market share.

The only good result of this would be if the "deal" falls apart, and we get some minimally competent negotiators instead.

The Pithlord does negotiate from time to time in his day job. And the only way to do it is to specify that the solution has to be one where all parties benefit, and the way they cut the surplus is rationally defensible.

The only principled base line is genuine free trade. The Americans argue that stumpage policies amount to a subsidy. This is bulls**t, because whatever stumpage arrangements the Crown and the licensees have between themselves just amounts to splitting rents: a genuine subsidy would only occur if the Crown covered some of the producers operational costs, and that actually does not happen in contemporary Canada.

But while the status quo is not a subsidy, the Pithlord is not against increasing the public's share of the rent. In particular, he would be willing to raise the minimum stumpage rate, and let the producers reduce the harvest where it is not economic. The minimum stumpage rate should represent what the tree is worth to the public uncut, which I think is well in excess of 25 cents a metre.

So, the right way to structure a deal is to agree to talk about raising the minimum stumpage rate in return for genuine free trade. "Market" stumpage calculation is basically a contradiction in terms, but I would be willing to talk about how other rates are calculated as well. And I would be willing to split the back taxes.

But the simple point is that this is a deal just for the sake of a deal, since it doesn't actually improve the only thing Canada should really care about, which is market access.

As a great man once said, "Ce gâchis mérite un gros non!"

Update: The market has already pronounced on the deal. Shares of publicly-traded Canadian lumber firms fell. The damage to workers will be even greater. A shift from a duty to quotas which kept sales the same would be good for profits. So if the stock market thinks this is bad for long-term profits, it is going to be even worse for Canadian workers.

It will also be bad for American consumers and the American construction industry. Since quotas are inferior in every way to duties, it is hard to see who wins, other than the protected American lumber industry.

The Globe & Mail editorialists endorsed the gâchis, but the linked article in the ROB is absolutely devastating. Jack Layton and the Canadian business class are going to see eye-to-eye on this one.

Update 2 (April 28): It appears the final deal (after outrage from the provinces and further intervention by Harper and Emerson) is a bit better than was initially announced. Under the deal, the Provinces can exceed their quotas, but Canada has to slap on a higher export tax. It appears Canada has to slap on some kind of export tax anyway if prices fall below $355 per thousand board feet.

I'm still agin' it, but my reasons would have to be a bit more complicated. Maybe when the final shape of the deal comes out, I will comment.

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