British Columbia, Lumber Industry, Seeking to Renegotiate US Softwood Lumber Agreement

The US-Canadian softwood lumber trade dispute can be traced back to the early 1980s, when American lumber companies argued that subsidized stumpage costs in Canada led to unfair trade between the two countries. Most timber in Canada is owned by the state; therefore, the cost to harvest timber in the country is not set by fair market prices but rather simply administrated by the government.

This trade dispute eventually led to the Softwood Lumber Agreement (SLA) in 2006. This effectively settled the dispute for a decade, but the agreement’s terms expired on October 12, 2015. A one-year moratorium on trade actions was put in place which, itself, expired on October 12, 2016. Since then, a total of 14 (10 Canadian, 4 American) different proposals have passed between the US and Canada on how the two countries might renegotiate the agreement.

President Donald Trump has been advised to include the software lumber dispute in any renegotiation of NAFTA. That renegotiation is extremely likely, and President Trump has already announced his administration is working on it. This tracks with statements the President has said in the past, as during his campaign Trump called NAFTA the “worst trade deal ever negotiated.” A leaked memo from Trump’s transition team indicates that they want to take an “aggressive, protectionist approach to trade both with Mexico and with Canada.”

Regardless, the B.C. Lumber Trade Council has announced that they will launch a lobbying campaign to convince the US for a more “equitable” softwood lumber agreement. Steve Thompson, B.C.’s Minister of Forests, Lands, and Natural Resources told the CBC, “We’re not naive at all to the challenge. We’re going to be making all efforts. We have a great, collaborative working relationship with the federal government on it.”

At the heart of the current dispute is still the disagreement about whether Canada’s timber prices represent fair trade between the two countries, and it’s in this battleground that British Columbia is attempting to make the most headway. Several individuals on B.C.’s side even argue for free, unencumbered trade.

One person leading that charge is Richard Garneau, CEO of Resolute Forest Products, Eastern Canada’s largest lumber producer. Garneau makes the claim that parts of Canada, such as Ontario and B.C., operate on the same free market basis as the US. “I think that we deserve the right to have access in Central Canada – in Quebec and Ontario – to the U.S. market,” he said.

However, the argument isn’t that simple. B.C. hasn’t changed its own market-based system over the past decade, and that system didn’t prevent B.C. producers from facing duties under the old SLA.

Arguments about the unfair nature of subsidized stumpage prices may seem cut and dry, but others attempt to make the case that duties harm the American consumer. Susan Yurkovich, president of the B.C. Lumber Trade Coucil said, “The message we’re bringing here is that it’s also critical for the U.S., if they want to build their economy, they need our lumber.” Bloomberg magazine quotes Richard Garneau as saying, “Every time you increase the cost of a house by $1,000 there’s 150,000 Americans that cannot afford to buy a new house.”

Whether or not that claim is true, it doesn’t answer the question about Canadian’s subsidized stumpage prices. Furthermore, US housing starts steadily rose during the last seven years of the old SLA, following the end of 2007-2009 recession. Over that period of time building permits increased from 478 thousand to nearly 1.3 million.

Can subsidized Canadian lumber prices lower building costs in the US? Certainly. But will that same subsidized lumber harm US timber growers and lumber companies? The overwhelming evidence shows that it will – and has in the past.

What remains to be seen is if Canadian officials and lumber companies can convince President Trump’s administration that they deserve open access to US markets. The US Commerce Department is reportedly expected to decide on preliminary duties as early as late April. In January, the US International Trade Commission stated that they believe open trade with Canada would cause material harm to American producers.

That initial finding is exactly what the US forest industry has argued for decades, and what initially led to the SLA in the first place.

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