US-Canada softwood lumber deal expires

19 October 2015

The bilateral agreement between the US and Canada on softwood lumber expired on Tuesday 13 October, raising the prospect that a decades-long trade feud between the North American neighbours could soon be renewed.

Prior to the entry into force of the Softwood Lumber Agreement (SLA), as the deal is known, the two sides had sparred for decades on whether Canadian lumber producers were benefitting from allegedly unfair government support.

Specifically, US softwood lumber producers had argued that stumpage fees – a tax on each harvested tree on state-owned land – were so low that they essentially amounted to a Canadian government subsidy. The US Department of Commerce then conducted a series of anti-dumping and countervailing duty investigations into these allegedly unfair trade practices, leading to the imposition of hefty duties.

The disagreement eventually led to the filing of high-profile trade disputes both under the WTO (DS 257) as well as under the North American Free Trade Agreement (NAFTA). In 2006, the two sides confirmed that they had reached a mutually agreed solution on the subject – specifically, the SLA – that would last for seven years. (See BioRes, 14 July 2006)

This was later extended for two additional years in 2013, with no changes. (See BioRes, 6 February 2012)

The agreement had provided for the refund of US anti-dumping and countervailing duties worth US$4 billion, out of the US$5 billion collected since 2002. The remaining US$1 billion was split between the US government and the forestry industry.

The SLA also provided for the use of border measures on softwood lumber being exported from Canada to the US. For instance, those exporters of lumber manufactured in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, or Quebec are subject to an export charge should lumber prices fall below a set threshold. The export charge is a percentage of that product’s price.

Furthermore, provinces have the option of either applying an export charge or a combination of a quota and a lower export charge, depending on specific needs. According to the Canadian government, these export measures will no longer apply from 13 October onwards.

The SLA also ensured that the US Department of Commerce could not launch any anti-dumping or countervailing duty investigations for as long as the agreement was in force. Other provisions included a safeguard should a region exceed its allocated share; a third-country adjustment mechanism that would allow for the refund of export charges retroactively if needed to preserve Canada’s share in the US market, under certain conditions; and a dispute settlement mechanism, should the need arise.

The deal also features a one-year standstill on US trade remedy action upon the SLA’s expiry.

New deal?

As lumber producers on both sides prepare for the ramifications of the deal’s expiry, some industry groups are now calling for a new agreement to ensure stability for producers and fair trade practices. Whether either side’s government will indeed choose to negotiate is, however, an open question given conflicting reports of disinterest in a new arrangement.

US producers, for their part, have openly advocated for a new SLA, while noting that the terms of such an arrangement should be modified to reflect market realities.

“Unfortunately, world timber and lumber markets have evolved and the 2006 agreement is now outdated. The Coalition intends to continue working with the US government to reach a new agreement that will resolve this issue effectively in the future,” said Charlie Thomas, Chairman of the US Lumber Coalition.

The US Lumber Coalition is an alliance said to represent large and small lumber producers in the US and has long criticised Canada’s allegedly unfair trade practices in this sector.

“If Canada continues to stay away from the negotiating table, the US industry will eventually have no choice but to use our rights under US trade laws to offset the unfair advantages provided to Canadian industry,” Thomas said.

The British Columbia Lumber Trade Council, which presents the bulk of the Western Canadian province’s lumber production companies, has also been backing a renewal. “We are hopeful that this would be an issue that would get urgent attention from the new government to find out if we can find a way forward,” said spokeswoman Susan Yurkovich in comments to CBC News.

The province is the country’s largest softwood lumber producer, according to government statistics, which attribute half of Canada’s US-bound lumber exports to British Columbia.

Some regional Canadian officials have also been pushing for the SLA to be continued. Christy Clark, the Premier of British Columbia, has pledged to make the renewal of a bilateral lumber pact the “first issue” she will raise with her country’s prime minister following the 19 October federal election.

Despite the US Lumber Coalition’s assertion that Ottawa is not interested in negotiating a new deal, Clark has suggested that Washington is actually not ready to begin talks.

report issued by the Canada West Foundation last month suggested that part of the perceived reticence on the US side for renewal comes from the high price of softwood in recent years, meaning that export charges have only been triggered periodically.

“From the perspective of US interests, these terms, under current conditions, do not help the US industry very much because prices are high enough that imports are not restricted via tariffs,” the report said. The Canada West Foundation also recommends that Canadian producers diversify their customer base, including building deeper ties in this sector with other economies, particularly in Asia, as well as seeking new value-add products and markets within the United States.

In the years since the SLA took effect, the Asian region has grown in its consumption of Canadian softwood lumber, though these numbers still fall well short of Canada’s exports to the US of the good.

ICTSD reporting; “Softwood lumber agreement ends Oct. 12,” THE CANADIAN PRESS, 11 October 2015; “Neither side eager to renew Canada-U.S. softwood lumber agreement,” BUSINESS VANCOUVER, 15 September 2015; Blame game already on as Canada-U.S. softwood lumber deal expires,” THE CANADIAN PRESS, 13 October 2015.

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