Softwood Lumber Dispute - Canada Loses a Round

Synopsis:

The following article contains the analysis of the on-going U.S.–Canadian Softwood Lumber dispute and the recent turn of events by the NAFTA ruling on May 22, 2020 wherein Canada lost a round after the panel gave a decision against the Canadian Economy.

In the Canadian economy, the softwood lumber industry is an important sector as well as a significant field, providing thousands of jobs in communities across Canada and having several positive spin-off effects in related industries and services. Modern, efficient, and environmentally sustainable lumber businesses in Canada have the potential to serve markets at home and around the world. In the United States, where demand for lumber exceeds what domestic mills can produce, housing and other industries depend on Canada for safe , reliable access to quality goods, if one does a comparative analysis. The 2006 Softwood Lumber Agreement (SLA) on both sides of the border, which supported market stability and predictability, expired on 12 October 2015.Canada and the United States continue to pursue a negotiated outcome to this important bilateral issue. The Government is also meeting on a regular basis with industry, provinces and territories, and other stakeholders.

Talking over the dispute specified among the United States and Canada over this dispute, the softwood lumber dispute has become one of the most persistent trade disputes between the two nations. Over the past 25 years, the U.S. lumber industry has frequently sought U.S. government restrictions on Canadian softwood lumber imports through the application of U.S. countervailing duty and anti-dumping laws – laws that allow import duties to be imposed when the U.S. industry is allegedly harmed by subsidies in the exporting country (countervailing duty) or by dumping, which is the case at the time of importation.

What is the importance of Lumber to Canada’s Economy?

The softwood lumber industry is important for the Canadian economy and has had thousands of people working. Forest industry has contributed to direct employment for approximately 232,700 people. Indirectly, 289,000 people have been hired to work in other sectors that rely on the forests in Canada. They include infrastructure, transport, and building. This gain from this sector can be seen in the nation's GDP, which added $21.2 billion in 2014. Which accounted for around 1.3 per cent of actual GDP? Canada has the highest trade surplus for forest goods ($21.7 billion in 2015).  As the highest market, the United States is heavily dependent on Canada's lumber. The US needs to outweigh the domestic provision. Canada has quickly expanded into the Asian economy, with China becoming the second-largest importer. In 2015, the US accounted for 69 per cent of Canada's exports of softwood lumber. This reflects an increased share of Canadian softwood lumber exports, which in 2011 hit its lowest level, accounting for just 54%. China accounted for 21 per cent the same year.

According to Wikipedia, The center of the conflict between the United States and Canadian Economy is the argument that the federal and provincial governments are disproportionately subsidizing the Canadian lumber industry, as most timber in Canada is owned by provincial governments. The rates paid for harvesting the timber (stumpage fee) are set the standard in the United States administratively, rather than through the competitive marketplace. Softwood lumber lots are privately owned in the United States, and the owners form an important political lobby. The U.S. claims that the Canadian arrangement constitutes an unfair subsidy and is therefore subject to U.S. trade remedy laws, where foreign trade benefiting from subsidies may be subject to a countervailing duty tariff to offset the subsidy and bring the commodity price back to market rates.

What is the recent status?

Recently, A North American Free Trade Agreement panel has upheld the latest U.S. lumber industry trade complaint against Canadian softwood lumber, but there are other rounds ahead, a B.C. forest industry leader says.On Friday, May 22, 2020, the North American Free Trade Agreement (NAFTA) ruled in the support of the U.S. International Trade Commission (USITC) determination that the Canadian lumber industry has harmed the U.S. industry to a serious extent. “Our government is extremely disappointed in the NAFTA panel's ruling affirming the USITC's January 2018 material injury determination,” Doug Donaldson, minister of Forests, Lands, Natural Resource Operations and Rural Development, said verbatim  in a press release.

He also stated that this was just one piece in the on-going softwood lumber dispute, and resolving this dispute was their top trade priority. Separate NAFTA appeals have now so also been initiated on countervailing duties and anti-dumping duty determinations by the Department of Commerce.

The U.S. Lumber Coalition on the other hand said that this decision affirmed the December USITC determination that American producers and workers were being "materially injured" by the imports. In a news release it said that the harm is caused by the Canadian government providing "massive subsidies" to its lumber industry and dumping those products into the U.S. Marketplace.

The situation gives way to the B.C. The Lumber Trade Council said it was frustrated by NAFTA’s decision on Friday [May 22, 2020] and said it remained persuaded that the judgment that Canadian lumber imports harm the U.S. industry was "flawed and without merit."

Following the decision to turn against them, it said Canada is also facing lawsuits from the U.S. with the World Trade Organization and NAFTA,The underlying countervailing determinations of duty and anti-dumping duty that have yet to be resolved by the Department of Commerce.

Concluding, it was said by Susan Yurkovich, president of the BC Lumber Trade Councilthat “We are confident that those proceedings will yield favourable results as they have done in the past, and that the duties ultimately will be ruled to be unwarranted.”