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Tensions over time: A primer on the Canada-U.S. softwood lumber dispute

A worker walks past stacks of lumber at the Partap Forest Products mill in Maple Ridge, B.C.

DARRYL DYCK/THE CANADIAN PRESS

The resumption of an old battle over softwood lumber and U.S. allegations that Canada unfairly subsidizes its industry provided some lift to BC Liberal Leader Christy Clark's election campaign. In response to a mid-campaign announcement by the United States of duties of up to 24 per cent on lumber exports from Canada, Ms. Clark called upon the Canadian federal government to ban the shipment of thermal coal through ports in B.C.

As the debate promises to drag on for weeks, possibly months, here's an explanation of how we got to this point:

The historical trade

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Canada has traded its softwood lumber to the United States as far back as the 1800s and trade issues between the two countries have been long-standing, with tariffs being imposed on Canadian exports as early as the 1930s.

But even though the majority of Canada's lumber exports still go to the United States, the ongoing trade disagreements and negotiations have continued primarily because of how differently the two countries treat their lumber industries.

Canada's lumber industry

In Canada, most timber is owned by provincial governments.

Under this system, the price to harvest the resource (also known as a stumpage fees) is set by law and administrative regulations, rather than privately or by market competition. The United States complains that stumpage fees are too low. However, the wood is used in many different industries, which means these low rates don't technically qualify as a government subsidy, according to the World Trade Organization.

Harry Nelson, assistant professor in UBC's department of forest-resources management, said Canada's timber industry tends to operate on more of a long-term basis.

"We have slower growing trees over a longer time frame where we are trying to meet multiple objectives," he said.

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As a result, Mr. Nelson noted that Canada's softwood-lumber industry doesn't respond to the ebbs and flows of markets in traditional ways.

"We don't turn off all the harvesting when markets get bad," he said. "We made the decision that we want to stabilize harvest levels."

Lumber industry in the United States

South of the border, however, most timber is privately owned, which shapes the country's lumber industry in a very different way. Wood from these privately owned companies is sold on the open market and stumpage fees are determined competitively, rather than by law.

"They are in the business of growing timber, a lot of them kind of grow it as a crop," Mr. Nelson said about the U.S. lumber industry.

According to B.C.'s Ministry of Forests, housing and construction industries in the United States continue to drive the country's need for Canadian lumber, particularly since the U.S. does not have enough of its own saw-milling capacity to supply all of its domestic need.

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In other words, the United States relies on Canadian imports, yet also fights to protect its own market.

1982-1983 (Lumber I)

In 1982, this disparity between the two countries' lumber operations came to a head. The United States faced a recession in the early 1980s, which lowered demand for lumber and prices of domestic products. Mr. Nelson said Canadian lumber imports were seen to be exacerbating the problem.

Random Lengths, an independent publisher of forestry-market data, said the dispute officially began when a group of producers called the Coalition for Fair Canadian Lumber Imports, now known as the U.S. Lumber Coalition, accused Canada of subsidizing its lumber industry through its low stumpage fees. It argued that a tariff should be applied to Canadian lumber imports so American domestic products were still competitive.

However, the U.S. Department of Commerce, which investigates allegations of subsidies, found that Canadian lumber was not unfairly subsidized and no tariffs were implemented.

1986-1991 (Lumber II)

In 1986, the debate cropped up again. According to the Library of Parliament synopsis of the dispute, the same coalition of American lumber producers petitioned for a 27-per-cent duty on lumber imports into the United States.

This time, the Department of Commerce concluded in its initial findings that the Canadian government was subsidizing its lumber industry by 15 per cent. To avoid duties being imposed, Canada and the United States reached a memorandum of understanding and Canada agreed to collect a 15-per-cent tax on lumber exports.

Canada terminated the MOU in 1991.

1992-1994 (Lumber III)

Immediately following Canada's termination of the MOU, the United States imposed provisional tariffs while the lumber coalition launched another investigation into Canadian subsidies.

In the meantime, Quebec was charged 6.2 per cent; Ontario, Alberta, Manitoba and Saskatchewan were all charged 15 per cent and B.C. was exempt. By May, 1992, the Department of Commerce decided to impose a 6.51-per-cent tariff on Canadian lumber exports from all provinces, except in the Maritimes.

Canada appealed these results, which brought challenges from the United States. Finally, an Extraordinary Challenge Committee of the Canada-U.S. free-trade agreement ruled in favour of Canada in 1994 and the United States was ordered to return the duties collected to its northern neighbour.

1994 (NAFTA)

When NAFTA came into effect in 1994, softwood lumber was left out.

"It had a special exclusion in the free-trade agreement," Mr. Nelson said. "I think it was just an indication of how intense the politics were around lumber."

Mr. Nelson added that, at the time, with disputes continuing with lumber, Canada, the United States and Mexico wanted to look at the bigger picture and get a free-tree agreement implemented.

"That created this dynamic [of lumber] being treated as a separate issue," he said.

1996 Softwood Lumber Agreement

With the threat of yet another lumber dispute on the way, the United States and Canada reached another five-year MOU known as the Softwood Lumber Agreement. With it, the United States returned the duties it had agreed to in 1994 and Canada implemented a fixed tax on softwood exports above a specific volume.

2001-2006 (Lumber IV)

In 2001, the Softwood Lumber Agreement expired and the United States filed a new petition for tariffs, this time requesting an investigation into dumping, a practice when a company exports its product at a lower price than it charges domestically.

Challenges and reviews continued for years and by 2006, a combined duty on Canadian exports to mitigate effects of government subsidies and dumping was at 10.8 per cent.

2006 Softwood Lumber AgreementIn 2006, a new Softwood Lumber Agreement was signed between the two countries and was in place for nine years. Global Affairs Canada said in a statement that "the agreement promoted a stable and predictable trade environment for the softwood-lumber industry and maximized benefits to Canadian industry, its workers and their communities."

As part of the agreement, the U.S. government and lumber industry agreed to not undertake any new investigations for one year after the agreement's end. That period expired last October.

Among other things, the agreement called for a return of more than $4-billion (U.S.) in duties collected by the United States since 2002, half of it to B.C. companies. But a further $1-billion of the duties collected stayed in the U.S. and half of it was distributed to the companies that prompted the dispute in the first place. That was despite rulings by the WTO that accumulating such duties and distributing them to the complaining companies violates international trade law.

The Libary of Parliament's summary of the dispute noted rulings by NAFTA panels and the WTO prior to the agreement were "inconclusive." While Canadian officials claimed to win at NAFTA, the United States simply refused to comply with an ordered end to the duties. Later, a WTO decision concluded that the United States was within its rights to impose duties on Canadian lumber, though the decision didn't take into account earlier WTO rulings that the way the duty was calculated was flawed.

The Canadians pointed to a NAFTA clause stating that the treaty trumps the WTO in cases of conflicting decisions. But a new negotiated lumber agreement was ultimately preferable to repeated wrangling in front of trade panels.

Today

With no softwood-lumber agreement in place currently, disputes have arisen again. David Emerson, B.C.'s special envoy to the United States, said the current demands from the U.S. are reminiscent of previous debates.

"It's really quite uncanny how this latest attack resembles previous attacks by the U.S.," he said in a recent conference call. "It's another recycling of the shakedown that the U.S. lumber industry has been empowered to undertake for multiple decades now. We're going down a path we've all seen before."

So why doesn't Canada find a new trade partner? According to Mr. Nelson, it's not so simple, especially since the majority of Canadian lumber exports still currently go to the United States.

"In B.C., we can access Asian markets and we've had some success, but those have been fairly flat for years," he said. "Both the federal government and the provincial government here have tried very hard to whip up interest in Canadian lumber in places like India and China but it's kind of a stretch."

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