US, Canada Report "Significant Differences" in Softwood Lumber Talks

23 June 2016

Negotiations between the US and Canada for a new framework on softwood lumber trade continue to struggle with “significant differences,” according to the top trade officials from the North American neighbours.

Reporting back following a 100-day window of “intensive” discussions mandated by their respective leaders, US Trade Representative Michael Froman and Canadian Minister of International Trade Chrystia Freeland said that despite these divides, the two trading partners are now clearer about what their shared goals should be in this process, along with some ideas for the way forward.

The 17 June statement comes just weeks before US President Barack Obama and Canadian Prime Minister Justin Trudeau are set to meet in the framework of the North American Leaders’ Summit, along with Mexican President Enrique Peña Nieto.

The 29 June meeting is being hosted by Canada, and is expected to address issues ranging from clean energy cooperation to advancing their respective economies. (See Bridges Weekly, 17 March 2016)

The leaders’ gathering is also slated to feature additional talks on the softwood lumber situation, officials say. However, whether that meeting will yield advances on the issue remains unclear, particularly given the reportedly deep-seated disagreements between the trading partners.

Standstill through October

The 100-day window for talks was agreed in early March, following a bilateral meeting between Trudeau and Obama in Washington. At the time, both leaders expressed optimism that their negotiators would be able to reach a new framework, while acknowledging the difficulties ahead in reaching a mutually satisfactory solution. (See Bridges Weekly, 17 March 2016)

The previous Softwood Lumber Agreement (SLA) had been in place from 2006, putting to an end years of trade disputes between the two major economies, both in the WTO context and under the North American Free Trade Agreement (NAFTA).

Softwood lumber comes from spruce, fir, and pine trees and is used for housing construction. Prior to the SLA, Canada exported approximately US$7 billion annually in softwood lumber. Last year, those exports hit US$4.6 billion, according to Canadian government data.

Meanwhile, Canada continues to make up the bulk of softwood lumber imports to the US, at nearly 97 percent last year, according to a US government report. Chile ranks second, at just over one percent of imports.

Under the accord, the US had returned several billions of dollars’ worth of anti-dumping and countervailing duties that it had collected on imported Canadian lumber. Washington had long criticised the low level of Canadian “stumpage fees” as being tantamount to unfair state aid. Those fees involve taxes that producers must pay on trees harvested from public lands, with the revenue being directed to government-provided services.

Meanwhile, under the SLA, lumber manufactured in British Columbia, Alberta, Saskatchewan, Ontario, or Quebec would face export charges should lumber prices fall below a set threshold, with the revenue from this tax returned to provincial governments.

The export charges could also be combined with a quota, should the region choose that option. Doing so would allow for a lower export charge than would otherwise be available. Meanwhile, the accord also committed Washington not to pursue any anti-dumping or countervailing duty probes against these Canadian products, among various other provisions.

The deal expired in October 2015, after having previously been extended past its earlier 2013 expiry date. However, it included a one-year period during which Washington is prevented from launching any trade remedy action on Canadian producers, effectively buying time for a possible new accord to be struck. (See Bridges Weekly, 15 October 2015)

The Canadian lumber industry has been split over whether a new deal is needed, and if so how it could be structured. In the wake of last year’s expiry, Western producers have called for a deal that will ensure continued stability, despite complaints from the Eastern counterparts that managed trade under the previous arrangement prompted losses on their side.

The stakes are particularly high for producers in British Columbia, which account for over half of Canada’s overall exports of softwood lumber to the US and counts the North American country as its largest export market for the good.

In their joint statement on Tuesday, Froman and Freeland did not announce any concrete timeframe for finalising the deal, or any milestones they would need to reach between now and then.

“The United States and Canada are committed to continuing negotiations in an effort to achieve a durable and equitable solution for North American softwood lumber producers, downstream industries and consumers," said the two trade officials.

ICTSD reporting; “Christy Clark applauds Canada-U.S. move to sign softwood lumber deal,” THE GLOBE AND MAIL, 10 March 2016; “Fading softwood lumber deal threatens Canadian jobs,” THE CANADIAN PRESS, 19 June 2016; “U.S., Canada softwood lumber talks stalled, litigation looms: sources,” REUTERS, 10 June 2016.

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