Awaiting the opening shot: Canada-US softwood wars poised to reignite

Softwood lumber is excluded from the continental trade agreement. Lumber producers in both countries continually bicker over whether Canadian companies’ cheap access to public forests constitutes an illegal subsidy.

The lumber lobby is now expected to file petitions to two U.S. federal agencies: one to the Department of Commerce alleging that Canadian lumber is subsidized, and another to the U.S. International Trade Commission that those subsidies hurt domestic producers.

Those proceedings will likely wrap up by late next year, federal officials in Ottawa told a background briefing Wednesday. By that point, the U.S. administration would calculate potential penalties, and decide whether to impose retroactive penalties. Canada would fight back at international trade panels.

Members of Congress are also expected to exert political pressure — they have mills in their own states, and have received at least US$3.6 million in donations so far this year from forestry companies, according to the site Open Secrets.

The stakes are considerable for forestry communities.

U.S. lumber consumption has surged the last few years, growing one-third since the depths of the housing crisis albeit still short of early-2000s levels. The details of an eventual deal or intervening punitive measures will help determine Canada’s share of that growth.

Canada’s share of the U.S. market has oscillated between 26 per cent and 35 per cent since 2000. It’s at 31 per cent now, according to a new analysis by CIBC. Expecting penalties, the bank has downgraded prospects for two lumber companies.

Disputes in the 1980s, 1990s and 2000s lasted an average of three years. They’ve been getting progressively longer. The latest dragged on for five years when it was concluded with a deal in 2006.

The trade penalties could also get costlier, CIBC warns. Duties could exceed market expectations of 20-30 per cent, such as for dumping — selling a product for cheaper abroad than at home — and countervailing duties, a penalty for illegal subsidies.

If those duties are retroactive, they’d still deliver a financial hit to companies like Interfor, which has nearly two-thirds of its production in the U.S.: “(A backward penalty) is purely negative for anyone with a single Canadian sawmill.”

Canada and the U.S. both say they’re trying to avoid that outcome. In a joint statement, the countries said officials are meeting in Washington, D.C., this week.

While hoping for peace, the Canadian government is preparing for trade war. The country has been mostly successful in softwood cases before NAFTA and WTO panels and could be heading there again.

“Canada is prepared for any situation,” said an email from a spokesman for International Trade Minister Chrystia Freeland.

“Our government will vigorously defend the interests of Canadian workers and producers… The U.S. industry is not where we need them to be. At the same time, the protectionist climate in the U.S. does complicate any trade negotiation, including this one.”

The 2006 softwood lumber agreement expired a year ago but a one-year standstill period kicked in to allow an attempt at resolution. It imposed export taxes of zero to 15 per cent on Canadian lumber, growing with market prices and export volumes.

The U.S. Lumber Coalition now wants across-the-board quotas — which is rejected by Western Canadian producers.

Alexander Panetta, The Canadian Press

by Canadian Press

Awaiting the opening shot: Canada-US softwood wars poised to reignite

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