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INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE PRIORITY
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RUEHUL/AMEMBASSY SEOUL PRIORITY 1469
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 06 OTTAWA 002837 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CAN AND EB 
STATE PASS USTR FOR AMBASSADOR SCHWAB, JIM MENDENHALL, JOHN 
MELLE, AND SAGE CHANDLER 
COMMERCE FOR ASSISTANT SECRETARY DAVID SPOONER AND JIM 
TERPSTRA 
 
E.O. 12958: N/A 
TAGS: ETRD PREL ECON EAGR CA CH KS
SUBJECT: VISIT OF USTR AMBASSADOR SUSAN SCHWAB TO OTTAWA, 
SEPTEMBER 11-12, 2006 - SIGNATURE OF U.S.-CANADIAN SOFTWOOD 
LUMBER AGREEMENT 
 
REF: A. STATE 147265 
 
     ¶B. OTTAWA 2688 
     ¶C. OTTAWA 2439 (ALL NOTAL) 
 
 ¶1. (SBU) Summary:  USTR Ambassador Susan Schwab visited 
Ottawa on September 11-12 to sign the U.S.-Canadian Softwood 
Lumber Agreement, which will be voted on by the Canadian 
Parliament during the week of September 18.   Prior to the 
signing ceremony at the Department of Foreign Affairs and 
International Trade (DFAIT), she was the guest of honor at a 
lunch hosted by Minister of International Trade David Emerson 
at which there was a tour d'horizon on trade and related 
topics.  The two ministers exchanged views on implementation 
of the Softwood Lumber Agreement, joint work on regional 
trade initiatives, trade with Korea and China, intellectual 
property rights (IPR), the U.S. imposition of APHIS fees on 
passengers and cargo crossing the U.S. border from Canada and 
related issues, ITAR, and BSE.  Ambassador Schwab later met 
privately with Minister Emerson and Industry Minister 
Bernier.  Embassy Comment:  Ambassador Schwab's signature of 
the Softwood Lumber Agreement, after several years of 
discussion and periodic negotiations, marked the end of a 
highly contentious and long standing irritant in 
U.S.-Canadian relations.  End Comment and Summary. 
 
¶2. (U) On September 12, Ambassador Schwab was hosted at lunch 
by International Trade Minister David Emerson and colleagues 
from DFAIT.  USTR General Counsel Jim Mendenhall, Commerce 
Assistant Secretary for Import Administration David Spooner, 
USTR, and USDOC officials also attended the meal.  The 
Embassy was represented by Ambassador Wilkins and Economic 
Minister-Counselor Mohler (notetaker). 
 
Softwood Lumber 
--------------- 
 
¶3. (SBU) Minister Emerson outlined the GOC's timetable for 
implementing the softwood lumber agreement.   When the 
Canadian Parliament returns after its summer recess on 
September 18, the Harper government will immediately 
introduce a "Ways and Means" motion to move forward on the 
export tax part of the agreement.  There will be a vote on 
the Motion within 24 hours.  Once tabled, the Motion cannot 
be amended; it can only be adopted on an up-or-down vote.  If 
the Motion is adopted, the government would quickly introduce 
legislation that conforms to the proposal in the Ways and 
Means Motion.  The bill would have to go through the usual 
legislative procedure (first, second, third reading with 
referral to a committee).  Regardless of how long this 
process takes, the government would be able to impose the tax 
immediately so that the agreement would go into effect by the 
anticipated October 1 date.  As of now, Emerson said that 92% 
of Canadian companies have signed up to receive refunds under 
the agreement.  Embassy Comment:  Passage of the Ways and 
Means Motion appears assured since the Bloc Quebecois (BQ) 
has announced that it will support the Harper government. 
The BQ votes will give the Conservatives enough votes to 
overcome opposition from the Liberal and New Democratic 
Parties.  End Comment. 
 
Trade 
----- 
 
¶4. (SBU) Ambassador Schwab briefed Minister Emerson on the 
results of last weekend's Rio meeting of the G-20 Trade 
Ministers, where the main topic was resumption of the Doha 
QMinisters, where the main topic was resumption of the Doha 
Development Round negotiations, which were in July. 
 
¶5. (SBU) Minister Emerson said that Canada is keen on moving 
ahead on sectoral initiatives to broaden NAFTA, in areas such 
as swine, electricity, steel, and chemicals (a particular 
interest of Mexico).  He asked about U.S. interests in this 
regard.  If the Doha Round fails, Emerson felt that Canada 
could find itself marginalized in trade since it does not 
have sufficient geopolitical clout to prevent discrimination 
in third-country markets.  In order to compete with China and 
other major trading blocs, he said that North American 
competitiveness depends on more standardized rules of origin. 
 
 
 
OTTAWA 00002837  002 OF 006 
 
 
Korea 
----- 
 
¶6. (SBU)  Minister Emerson acknowledged that Canada is making 
little progress in its free trade agreement (FTA) 
negotiations with South Korea, which rejected Canada's most 
recent substantive offer.  Moreover, there is serious 
pressure against a Korean FTA from the Canadian auto 
industry.  The Minister admitted that he needs to show that 
free trade with Korea would be a win for Canada. 
 
¶7. (SBU)  Ambassador Schwab noted that U.S., Canada and 
Korean trade officials will focus on the auto sector during 
their meeting next week in Toronto.  Korean President Roh 
will also see President Bush later this week.  She said that 
the most recent round in the U.S.-Korean FTA talks in Seattle 
did not result in any breakthroughs, either.  Schwab agreed 
that Canada and the U.S. should work together on their 
respective FTA negotiations with Korea.  Both governments 
should also discuss in more detail the promotion of sectoral 
initiatives in the context, not only in North America, but 
also in the Western Hemisphere. 
 
¶8. (SBU)  Deputy Trade Minister Morin pointed out that Canada 
hosted Mexican trade officials recently in Vancouver.  A 
follow-on meeting is possible in Mexico in November, but 
substantial progress would await the formation of the new 
Calderon government which takes office in December. 
 
China 
----- 
 
¶9. (SBU) Ambassador Schwab noted that Canada would join the 
U.S. in announcing our WTO case on auto parts in China.  She 
had had productive meetings in China last month and gave the 
PRC public and private credit for progress that they are 
making on some trade issues, but she also noted problem areas 
such as subsidies and intellectual property rights remain. 
There was no progress on the auto parts issue.  More 
generally, Schwab believed that China needs to stand up for 
the Doha Development Round given its increasing stake as a 
major player in global trade, but she found officials to be 
more focused on preparations for the next party congress. 
 
¶10. (SBU) Minister Emerson noted that Canada has its own IPR 
issues with China, but he expect Beijing to become more 
vigorous in preserving IPR since it is now developing 
products worth protecting.  Schwab agreed that the Chinese 
understand this in principle, but they still fall down on IPR 
enforcement. 
 
IPR 
--- 
 
¶11. (SBU) Minister Emerson said that Canada is looking at 
amending its Copyright Law, including addressing technical 
protection measures and ISP issues, although he doubted that 
the GOC would go as far as adopting the "notice and takedown" 
approach advocated by the U.S.  He assured Ambassador Schwab 
that Canada maintains a strong commitment to taking 
anti-piracy measures and effective enforcement at the border. 
  The new legislation, which is still under development, 
should be "a little stronger" than the C-60 bill which was 
introduced by the former Liberal government.  Regarding the 
U.S. request for Canada to join in a possible WTO case 
against China on IPR, Emerson said that the GOC is consulting 
with private stakeholders.  He noted, however, that such a 
case could cause legal issues with the Canadian Charter of 
Qcase could cause legal issues with the Canadian Charter of 
Rights and Freedoms, which is akin to the U.S. Bill of 
Rights.  Ambassador Schwab stressed that violation of 
intellectual property rights is a very serious issue for the 
U.S. 
 
APHIS Fees 
---------- 
 
¶12. (SBU) Minister Emerson articulated Canada's strong 
concerns with the recent U.S. announcement that it would 
start to impose APHIS fees on cargoes and passenger traffic 
crossing the border starting later this year.  He urged the 
 
OTTAWA 00002837  003 OF 006 
 
 
U.S. to "back off" this proposal because of the "incredible 
backlash" it is causing in Canada:  "Please make it go away." 
 Emerson claimed that Canada had been blindsided by the news, 
which, he said, is hampering the Harper government's efforts 
to improve relations with the U.S. 
 
¶13. (SBU) Ambassador Schwab said that she has discussed the 
issue with U.S. Agriculture Secretary Johanns, who pointed 
out the increased expense in dealing with cross-border 
phytosanitary issues such as BSE.  She promised to convey 
Emerson's concerns to Secretary Johanns, but could not 
promise that the fee proposal would be rescinded.  However, 
Schwab agreed that it would be important that any fee be 
levied in such a way as to minimize its impact on the 
cross-border trade.  She praised the close cooperation 
between APHIS and its Canadian counterpart agency, the 
Canadian Food Inspection Agency (CFIA).   Ambassador Wilkins 
noted that the APHIS fee, in combination with the Western 
Hemisphere Travel Initiative (WHTI), is seen by Canadians as 
"piling on."  Ambassador Schwab replied that she had received 
the Canadian message of discontent clearly and stressed that 
the impact of the fee should be "invisible." 
 
Crossing the Border 
------------------- 
 
¶14. (SBU) Deputy Minister Morin agreed with Ambassador 
Wilkins' characterization of Canadian perceptions.  She noted 
that the new North American Competitiveness Council (NACC), 
the private sector component of the Security and Prosperity 
Partnership (SPP), hopes to address the need for the border 
to be predictable.  Schwab agreed.  Morin pointed out that 
there has been a recent reduction in border crossings by 
Americans traveling to Canada.  Ambassador Wilkins added that 
cross-border traffic is being deterred by high gasoline 
prices and the strong Canadian dollar.   Speaking personally, 
Minister Emerson, who lives in British Columbia, said that he 
would be less likely to spend a weekend playing golf in 
Washington State because of the long lines of cars at the 
Blaine border crossing.  He thought that all these factors 
serve to discourage Canadians and Americans from making 
spontaneous trips across the border for shopping and sporting 
events as they had done in the past.  On the positive side, 
Ambassador Wilkins observed that air travelers in Canada are 
finding their trips to the U.S. expedited by being 
"pre-cleared" by U.S. CBP officials at major Canadian 
airports.  A new pre-clearance site opens at the Halifax 
airport in early October. 
 
ITAR 
---- 
 
¶15. (SBU) Minister Emerson briefly raised Canadian concerns 
about the operation of the U.S. ITAR program.  He said that 
Canadians understand how the events of 9/11 have affected 
U.S. security, but enforcement of ITAR rules is increasingly 
affecting Canada because of its defense relationship with the 
U.S.  20% of Canadian defense procurement now comes directly 
from the U.S. and 20% more comes from the Canadian 
subsidiaries of U.S. defense companies.  He noted that the 
Harper government intends to spend $17 billion in defense 
expenditures over the next decade.  Canada will work hard to 
comply with U.S. ITAR checks, but the requirement for dual 
Qcomply with U.S. ITAR checks, but the requirement for dual 
nationals working on ITAR-related technologies sometimes 
causes problems, such as for Canadians who also hold Chinese 
citizenship.  Emerson did not have a solution, but wanted the 
U.S. to know about the problems the GOC can face in complying 
with the ITAR regulations. 
 
¶16. (SBU) While admitting that the State Department, not 
USTR, takes the lead on ITAR within the USG, Ambassador 
Schwab replied that the regulations can cause frustrations 
for U.S. companies as well.  There needs to be a balance 
stuck.  It would be better, she continued, if we could look 
at issues as if there were a common border surrounding Canada 
and the U.S., rather than as an issue caused by the 
Canadian-U.S. border.  Emerson agreed.  He said that policies 
such as the WHTI are a "running sore" in the bilateral 
relationship and are inconsistent with policies to integrate 
the Canadian and U.S. economies to the maximum extent 
 
OTTAWA 00002837  004 OF 006 
 
 
possible.  Ambassador Schwab thought that technology will 
eventually ease such border issues. 
 
BSE 
--- 
 
¶17. (SBU) In answer to Minister Emerson's question about the 
impact of recent Canadian BSE cases, Ambassador Schwab said 
that USDA is working on a science-based solution to open the 
border to all Canadian cattle without regard to age. 
Secretary Johanns told her that USDA is moving to implement 
 
SIPDIS 
this policy as soon as possible.  She said that such 
decisions take political will as well as the will to take 
some risk.  Emerson praised the unprecedented flexibility on 
the part of the U.S. on this sensitive issue.  He admitted 
that Prime Minister Harper has been under a lot of pressure 
from an often polarized Canadian public in which there are 
anti-U.S. feelings, but he has always acted in Canada's 
national interest.  Emerson appreciated the fact that the 
U.S. has ignored similar pressures on its side of the border 
to stay the course and "do the right thing."  Ambassador 
Wilkins pointed out that leadership matters. 
 
¶18. (SBU) After the lunch, Ambassadors Schwab and Wilkins 
held private meetings with both Minister Emerson and Industry 
Minister Maxime Bernier, who could not attend the lunch, but 
did come to witness the signing of the softwood agreement. 
 
Signing the Softwood Lumber Agreement 
------------------------------------- 
 
¶19. (U) The signing ceremony on the DFAIT roof terrace 
overlooking downtown Ottawa and the nearby Gatineau Hills 
took place on a gorgeous early fall afternoon and was well 
attended by the Canadian press.  Ambassador Schwab's 
statement at the signing: 
 
"Thank you Minister. 
"This is a great day - a day that is a long time in the 
making - and which many people understandably thought would 
never come. 
"With this signing and implementation of this landmark 
agreement, we hope to bring to a close over 20 years of 
litigation - and the market instability and political tension 
that have often accompanied it. 
"To reach this agreement, both sides had to compromise and 
make hard choices - and there is still much work to be done 
to bring the agreement into force. But once it is 
operational, this will be a good agreement for the United 
States, for Canada, and for the relationship between our two 
countries. 
"Canada is the United States' largest trading partner, and it 
is vital that we keep that relationship strong and growing. 
Even while this dispute was ongoing, over 96% of our trade 
with Canada was dispute-free. After this agreement is 
implemented, over 99% of our trade will be dispute free. 
"For those who would criticize this agreement, I ask them to 
consider the alternatives. Without this agreement, we would 
see a continuation of litigation - either through 
continuation of the existing anti-dumping and countervailing 
duty orders or through the filing of another round of cases. 
The duties collected as a result of those cases could be 
substantially higher than those applied under the settlement 
and would be susceptible to great volatility. Since 2002, the 
combined duty margins on softwood lumber have ranged from 11% 
to 27%. If this agreement had been in place over the last ten 
Qto 27%. If this agreement had been in place over the last ten 
years, there would have been unrestricted trade for over half 
the time. 
"In place of costly litigation, we will create a predictable 
and stable market; strengthen the competitiveness of the 
North American lumber industry; provide a pathway to resolve 
the policy questions underlying this dispute; bring a little 
more harmony among neighbors; and provide financial 
assistance to worthy causes. 
"With this agreement, we will have a formal channel - outside 
the super-heated environment of litigation - to discuss ways 
to resolve our differences once and for all. Under the terms 
of the agreement, we will establish a bi-national working 
group to discuss policies that could eventually result in the 
elimination of border measures. The commission is expected to 
 
OTTAWA 00002837  005 OF 006 
 
 
produce a report within 18 months after the agreement is 
signed. We have never had that before under any previous 
lumber agreement. 
"With this agreement, almost half a billion dollars will be 
used to advance low income housing initiatives and disaster 
relief, to provide community assistance to timber-reliant 
communities, and to assist in the development of forest 
management practices that will promote sustainable forestry. 
Another $50 million will be disbursed to a bi-national 
industry council, which will work to build an atmosphere of 
trust and cooperation, while promoting the integration and 
strengthening of the industry. 
"The United States Government is fully committed to this 
endeavor. We fully expect that this agreement will have a 
duration of at least seven to nine years. In fact, it is our 
sincere hope that the processes that will be established 
under the agreement will lead to a permanent solution to a 
problem that has too long been a distraction in our 
relationship. We have an historic opportunity and we need to 
grab it. 
"I want to thank the leaders of our two great countries - 
President Bush and Prime Minister Harper - for their 
leadership and their unwavering commitment to finding a 
solution to this longstanding irritant. 
"I also want to thank my Canadian colleagues and 
counterparts, Ambassador Michael Wilson and Minister David 
Emerson, for their tremendous efforts in concluding this 
agreement. Their steadfast support has been, and will 
continue to be, absolutely critical to the success of this 
undertaking. 
"Finally, I want to thank the U.S. negotiating team from USTR 
and the Department of Commerce, which has put in long hours 
over many months to negotiate this agreement. 
We can all be proud of this tremendous achievement. Let us 
stay committed to its success. 
Thank you." 
 
¶20. (U) Emerson's remarks: 
 
"Canada's New Government today marked another important step 
toward fulfilling a commitment to resolve the longstanding 
softwood lumber dispute, signing an agreement with the United 
States that delivers real results for Canadians. 
"Backed by two national governments, all major 
softwood-producing provinces and an overwhelming majority of 
Canadian softwood lumber producers, this historic Agreement 
delivers predictable access to the U.S. market; guarantees 
the repayment of more than US$4.4 billion in disputed duties; 
provides provincial and regional flexibility in forestry 
policies; and brings an end to years of uncertainty and 
costly litigation. 
"Professionalism, mutual respect and sustained effort have 
delivered this deal for Canadians. By approaching our most 
important diplomatic and trading relationship in a rational, 
workmanlike fashion, we are getting things done for Canadians. 
"Today's signing-and the opportunity to begin constructive, 
new dialogue with Trade Representative Schwab on issues that 
matter-represents hope that trade irritants, however few 
there are, can be dealt with in a courteous and professional 
manner." 
 
¶21. (U) During the press question and answer session 
following the signing ceremony, Ambassador Schwab rebutted an 
American trade attorney's claim to a Parliamentary committee 
QAmerican trade attorney's claim to a Parliamentary committee 
last month that the US$450 million Meritorious Initiative 
would be used as a political slush fund to elect Republicans 
in the U.S. congressional elections.  She characterized such 
an allegation as "silliness" and stressed that the money will 
only be spent by non-profit organizations selected after 
consultations with Canada.  The money would be spent in U.S. 
communities dependent on timber, for low income housing and 
disaster relief and to promote better forestry practices. 
Ambassador Schwab also pointed out that the money will not 
flow until after our elections:  "So I think there is no way 
it will become a political fund." 
 
¶22. (U) The text of the 82 page agreement is at 
http://www.dfait-maeci.gc.ca/eicb/softwood/SL A-main-en.asp. 
 
¶23. (U) This message has been cleared by USTR and Commerce 
 
OTTAWA 00002837  006 OF 006 
 
 
staff. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
WILKINS