The way quotas were calculated under the proposed softwood deal would mean Canfor would likely be forced to close at least two saw mills, said David Emerson, the company’s president and CEO.
That was something he wasn’t prepared to do.
“The current settlement framework – is disproportionately punishing to Canfor’s employees, communities, shareholders and customers,” he said Thursday in announcing his company’s opposition to the deal.
All things being equal, Canfor would be forced by reduced export quotas under the deal to cut back on production enough that it would have to close at least one mill, he suggested.
“If you only have so much quota, then you’ve got to find a place to take the production out.”
The very nature of the deal would force companies across Canada to close operations, because all companies will see a reduction in their allowable exports to the U.S., he said.
Canfor’s situation was made worse, however. The company cut production in 2001 while the U.S. was conducting its trade investigation. Canfor hoped to avoid facing retroactive duties as a result of over-production.
But, because the proposed quota deal negotiated last week between the U.S. and Canada is based on market share between April 1, 2001 and September 30, 2003, Canfor’s share of the quota would dip by a third more than it would have had it not scaled back in the early days of the dispute, said Emerson.
“That would cost us something in the neighbourhood of 100 million board feet of reduced quota allocation going into this so-called out-of-court settlement package.
“It basically is the difference between closing one mill and closing two mills.”
Canfor also objected to losing even more money than it should because of the way the deal proposes to share the duties already paid.
Under the deal, Canadian companies would be returned 52 per cent of the countervailing and anti-dumping duties they have paid. U.S. industry members would receive the remaining 48 per cent.
Canfor maintains that, because the U.S. commerce department already ruled Canfor’s countervail rate was 12.24 per cent instead of the industry standard 18.79 per cent, it has overpaid its fair share by $60 million. It will only get 52 per cent of that overpayment back, said Emerson.
The company has also said it is unwilling to drop its Chapter 11 North American Free Trade Agreement challenge seeking hundreds of millions of dollars in damages. The U.S. has requested as part of the deal that NAFTA and World Trade Organization court actions be dropped.
Emerson’s announcement was considered bad news for the future of the deal, although the federal government had not made a final decision on signing it by the end of the week.
The provincial government has been conspicuously silent on the proposed agreement since last weekend.
Prince George-North MLA Pat Bell was unwilling to say what the government’s official position is. But he did suggest the Canfor announcement didn’t help the cause of those supporting the deal.
“Canfor coming out on the negative side certainly sends a pretty strong message to our government and specifically to the Americans,” he said.
Emerson’s opposition puts him on the opposite side of the fence from his proposed successor.
Slocan CEO Jim Shepherd was one of a small parade of industry representatives that came out in immediate support of the deal.
Shepherd is scheduled to take over as president and CEO of Canfor if and when a proposed merger of the two companies is completed next spring.
“It would be surprising in the extreme if Jim Shepherd in his Slocan role and David Emerson in his Canfor role had identical views,” said Emerson.
Until the merger is complete, the two presidents still speak on behalf of two independent, publicly-traded companies, he said. Canfor and Slocan face a different set of circumstances under the deal, including different countervail and anti-dumping rates.
“We do have identical views, though, when it comes to the fact that we both believe that ultimately this trade issue has got to be resolved through negotiation.”