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The Softwood Lumber Dispute — January 20, 2018

The Softwood Lumber Dispute

Submitted by Veronica

Canada and the US have had a turbulent history of lumber trade, dating back as far as the 1800s. For example, in the 1820s, lumber interests was one of the motivators for the Maine-New Brunswick border dispute. Likewise, today, the dispute around the North American Free Trade Agreement (NAFTA) between Canada and the US centres around softwood lumber trade.

Essentially, this disagreement stems from the fact that Canada and the USA have different structures in our respective forestry sectors. In the USA, the majority of forested land belongs to private owners. Meanwhile, in Canada, most of the land is crown land, that is, belonging to the government. The land is then leased out to companies, who are charged a “stumping fee”. This is decided by each individual province based on a variety of factors. However, the US softwood lumber industry has argued repeatedly that these stumping fees are artificially low in Canada. As a result, they claim Canada is conferring an unfair “subsidy,” which injures the American industry. This issue of conflicting lumber interests has continued to today, featuring four distinct disputes.

Lumber I (1982-1983)

In late 1982, American sawmillers asked the US Department of Commerce (hereafter to be known as Commerce) to investigate the stumpage system in British Columbia and three other provinces. However, the following year, Commerce came to the conclusion that the stumpage fees couldn’t be offset with a new tax (a countervailing duty).

Lumber II (1986-1991)

A second claim from the American industry group led the Commerce to alter its calculations. It found that Canada’s stumpage system had a subsidy of 15%. That is, the government was unfairly granting the lumber industry 15% of the money used. Subsequently, the US and Canada signed a Memorandum of Understanding (MOU), which forced Canada to collect a 15% countervailing duty on all lumber exported from the country. Though this duty remained, Canada eventually terminated the MOU.

Lumber III (1992-2001)

After the MOU was terminated, Commerce initiated a new investigation into the countervailing duty, and concluded that it was against the General Agreement on Tariffs and Trade (since replaced by the World Trade Organization), which regulated trade between countries. They claimed that BC and three other provinces had unfair subsidies which were not balanced by countervailing duties, and thus the US International Trade Centre imposed a new countervailing duty.

Canada appealed this decision to two panels of the Canada-US Free Trade Agreement (FTA), and both decided in favour of Canada. They also decided the Commerce’s calculations were actually in direct contrast to the law because they used the American price of lumber to decide the value of foreign lumber. Following this decision, the USA requested an Extraordinary Challenge Committee, but the panel again decided in favour of Canada.

With the USA delaying the refund of past duties and another round of countervailing duties investigations approaching, Canada and the USA signed a new MOU. Through this Softwood Lumber Agreement (STA), the United States refunded the duties collected in Lumber III. Meanwhile, Canada agreed to impose a fixed tax on softwood production above a certain amount. This deal was difficult for many Canadians working in the softwood industry, especially BC, and resulted in numerous layoffs and closure. The STA expired in 2001.

Lumber IV (2001 to the present)

Which brings us to the present. The current softwood lumber dispute began when the 2006 North American Free Trade Agreement expired. Also known as NAFTA, this makes trade easier by removing restrictions and tariffs between Canada, Mexico, and the United States in order to promote economic growth. In addition to softwood lumber, this deal also includes regulations on telecommunications, intellectual property, mobility of workers, and the environment.

In addition to being the longest-standing dispute, Lumber IV has been complicated by elaborate petitions filed by the USA’s Coalition for Fair Lumber Imports. In it, they identified numerous provincial and federal government programs, which they claimed to be subsidizing the lumber industry. They also petitioned for an investigation of certain Canadian companies for unfairly charging international consumers, including the USA, more for softwood lumber than what would be charged domestically (Canada). This is known as dumping.

Today, there have been rumblings of the USA withdrawing from NAFTA, which would greatly affect Canada economically. It is common knowledge that lumber is an important export for Canada, especially for those in the Canadian Shield and us on the West Coast. Any change to NAFTA, such as tariffs or restrictions, or the forestry sector of either of the two nations will impact how trade, specifically of softwood lumber, happens, in turn affecting all Canadians. This is especially important for the approximately 250 lumber mills in BC, most in rural locations.

 

Sources:

business.financialpost.com/commodities/agriculture/canada-takes-softwood-lumber-dispute-with-u-s-to-nafta-appeal-panel

international.gc.ca/controls-controles/softwood-bois_oeuvre/index.aspx?lang=eng

lop.parl.ca/content/lop/ResearchPublications/tips/tip98-e.htm

lop.parl.ca/content/lop/ResearchPublications/tips/tip134-e.htm

osler.com/en/resources/cross-border/2017/international-trade-brief-the-impact-of-softwood