Blog Post

Crunch time for the US-Canada Softwood Lumber Agreement

by Pierre Bach Sep 01, 2016

Pressure surrounding the longstanding US-Canada softwood lumber dispute is mounting as the end of the one-year moratorium on litigation expires in October this year. Talks on what is to replace the expired Softwood Lumber Agreement (SLA) appear to have stalled. At the heart of the debate lie the differences between how the Canadian and US lumber industries are structured. In Canada, most timber resources are owned by provincial governments, and harvesting prices (stumpage fees) are set administratively. In the US, prices are determined by the market – invariably resulting in higher production costs for the US lumber industry.

The US lumber industry argues that the Canadian lumber industry is unfairly subsidized by public authorities, which frequently undercut domestic prices and threaten their competitiveness. The Canadian government and lumber industry dispute this claim, arguing that lumber represents a broad array of interests for many different industries, and as such is immune from countervailing duties, precisely because according to US law a countervailable subsidy must be specific to a particular industry.

The stakes are high for both countries. Softwood lumber is vital to the Canadian economy, and the US is its largest market and heavily dependent on Canada’s lumber – US softwood lumber demand far outweighs its domestic supply. With the Canadian dollar weakening to CAD 1.30/USD in recent weeks – only exacerbating the export competitiveness of Canadian producers – and the US housing market showing signs of a rebound, it appears essential for both countries to devise an agreement, but it remains unclear when and what will be agreed.

The previous agreement, implemented in October 2006 for a seven to nine year period, required the US to lift its duties provided lumber prices remained above a certain range. Below the said range, a mixed of export tax and quotas would apply on imports of Canadian lumber. Canada’s provincial governments were encouraged to change their pricing systems. Both countries agreed to extend the agreement to the full nine years allowed, and it expired in October last year, granting Canadian softwood lumber producers unfettered access to the US softwood lumber market.

On both sides of the border, there seems to be as many who wish simply to renew the agreement as parties wishing to reform it. Provinces including British Columbia, New Brunswick and Nova Scotia saw their lumber exports rise under the old SLA, and advocate for its continuation. Conversely, the National Association of Home Builders in the US is advocating free trade, lest quotas, tariffs and border tax measures create unpredictable swings in costs and supply of lumber. Others are betting on failed negotiations in order to petition for the US Commerce Department for trade duties once more.

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