Softwood deal could be in reach, analyst report says

MONTREAL — The framework for a 10-year softwood lumber agreement between Canada and the U.S. could be reached in the coming weeks, says an industry analyst, citing discussions with unnamed trade contacts.

In a report released Thursday, Hamir Patel of CIBC World Markets said a deal setting quotas on Canadian softwood exports could be acceptable to the U.S. lumber industry if Canada drops several demands. That would include withdrawing a request that New Brunswick be excluded from any softwood agreement restrictions, Patel said.

“We now believe there is a greater than 50 per cent probability that the two sides could announce an agreed-upon framework by the end of August,” he wrote.

He said the U.S. Lumber Coalition could be encouraged by the Trump administration to sign a deal that would gradually reduce Canada’s share of the U.S. market to 27 to 28 per cent over several years from its 31.9 per cent share last year.

A spokesman for Foreign Affairs Minister Chrystia Freeland declined to comment on “rumours until a deal is reached that is favourable to both sides.” The U.S. Lumber Coalition also said it wouldn’t comment on speculation.

U.S. producers would likely demand that they keep all duty deposits paid to date as compensation for 18 months of free trade since the past softwood agreement expired in 2015, Patel said. Canadian producers received back 80 per cent of their deposits in the 2006 softwood lumber agreement.

The quota would likely be divided among provinces based on their historical share of the U.S. market, Patel added.

A similar deal rejected by the industry about 10 days ago would have capped Canada’s share at 31 per cent in the first six months, with that falling to 29 per cent over the next 12 months until it were to reach 28 per cent in early 2022.

A source close to the negotiations said the two sides were on the verge of a deal until some elements in the U.S. industry balked.

The person who spoke on condition of anonymity because he was not authorized to speak about the talks said there is little chance now of a softwood deal in place before NAFTA negotiations begin next month, with the Canadian and U.S. governments now eyeing September as the earliest date for a softwood deal to be finalized.

Paul Quinn of RBC Capital Markets said information that there was a deal in the works is credible, based on his discussions with contacts in the sector.

“But until you get a deal it’s all just talk,” Quinn said from Vancouver.

“I’m more in the camp that it’s going to be longer than earlier,” he said. “If they don’t get anything done by Aug. 16, really this sits on the back burner until they get NAFTA done.”

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