Softwood lumber trade is first U.S.-Canada issue facing newly elected Prime Minister Trudeau

16/11/2015

U.S. Canada Softwood Lumber Trade

U.S. Canada Softwood Lumber Trade

Newly elected Prime Minister Justin Trudeau made a litany of campaign promises to Canadian voters over the course of his election campaign, one of them being to improve relations with Canada’s southern neighbor.

Relations between Canada and the U.S. had grown testy under the outgoing Harper regime, largely due to differences in opinion over the XL Keystone pipeline.

Harper was insistent on the project, going so far as to call it a ‘no-brainer,’ while U.S. President Barack Obama was lukewarm on the project, before officially rejecting the project in early November.

But now that Trudeau has assumed his new role, he will first have to contend with a long-burning trade issue between the two countries: that of softwood lumber.

Softwood lumber trade put a sliver in US-Canada relations

Disputes over the softwood lumber trade – which applies to wood originating from conifers, about 80% of the global lumber industry – have plagued bilateral relations between the two states since the 1980s, and have most recently been addressed by the 2006 agreement.

Under this agreement, which was scheduled to expire in 2012 until being extended for another two years, the U.S. agreed to lift antidumping duties so long as lumber prices remained above a certain level.

Canada was responsible for enforcing lumber restrictions, while provincial governments were expected to make reforms to remove any form of subsidies on the good.

The 2006 agreement expired Oct. 12.

Reuters reported,

A Canadian group representing the industry is calling for a simple extension of the 2006 deal, while U.S. industry representatives are calling for changes to the agreement.

“The 2006 agreement is now outdated,” Reuters quoted U.S. Lumber Coalition chairman Charlie Thomas on Oct. 26.

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

The U.S. is impatient for an update to the dated agreement

A report from the Canada West Foundation, a nonpartisan think tank, argues that U.S. market share of lumber is unlikely to decrease under the current agreement.

The foundation points to the fact that the U.S. timber supply outstrips the Canadian supply, and underlines that this decrease in supply has already hit the industry in British Columbia, where the industry is largest.

Since 2005, the report contends, 24 mills have shut down; of these, 21 remain shuttered. U.S. production of timber continues to increase, Canada West stated.

BC timber exports to the U.S. amount to C$3 billion, annually, while critics argue that the U.S. desperately needs Canadian timber for its housing needs.

Canada West expects another court battle before the World Trade Organization for the issue to be resolved, once again.

B.C. paper industry also under fire from the U.S.

A smaller trade dispute, also affecting British Columbia firms, is coming to light.

Two companies, Catalyst Paper and Irving Paper, have been on the receiving end of high duties of up to 19% from the U.S. over the export of its specialty paper.

U.S. customs officials maintain that Canadian companies are subsidized and are “dumping” the product in the U.S., where producers of the same product cannot afford to sell at equally cut-rate prices.

The duties were fixed after the U.S. Department of Commerce followed up on a complaint made in February 2014 by a U.S. group representing the paper industry.

The department investigated two Canadian firms, Hawkesbury Paper and Resolute Paper, before making its decision.

Catalyst told the Vancouver Sun that it has had to pay C$1.3 million to the U.S. Treasury Department for shipping 17,000 tonnes of its products. Catalyst expects to pay more once another ruling from the Treasury Department is made.

Do you think these issues will quickly be resolved under the new Canadian government? What do you think a new lumber agreement will look like?

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Author: Jacqueline Côté

I am a working journalist, with experience as SNL Financial’s Canadian correspondent for its Mining and Metals vertical. I also served as the Managing Editor for Central Asia Newswire – covering daily economic and investment news in the region – as well as Features Editor for the Washington-based Magharebia.com, which covers developments in the North Africa region. I have been published in The Montreal Gazette, The Guardian (UK), The New Statesman (UK), Red Pepper (UK), Geopolitical Monitor and CNN.com.

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