Softwood lumber is one of Canada's largest exports to the United States. Canadian exporters ship some C$10 billion worth of easy-to-saw spruce, pine and fir lumber to the U.S. each year, mainly for construction and home renovation. Canadian exports comprise about 34 percent of American softwood consumption.
A Longstanding Dispute
Softwood exports have been a focal point of controversy in Canadian-American trade for over 20 years. The lumber disputes have centered on punitive U.S. duties imposed on imported Canadian softwood.
As a result of back-and-forth legal wranglings, in May 2002 the U.S. government slapped duties on Canadian lumber that totalled more than 27 percent. Canada then won a number of World Trade Organization rulings which lowered the penalty.
Nevertheless the U.S. continues to fight back, and in June 2006 raised the Canadian softwood duties from 10.8 to 14.7 percent.
Why these import penalties? Spurred by complaints from U.S. producers, the American government argues that Canada unfairly subsidizes its lumber companies by charging unreasonably low stumpage fees to harvest softwood timber on public lands. America's Coalition for Fair Lumber Imports insists that all Canadian provincial governments must follow the American model of auctioning off timber rights at market prices.
Highlights of the July 1 Deal
In a ceremony late on Canada Day, U.S. Trade Representative Susan Schwab and Canadian Trade Minister David Emerson triumphantly announced signoff on a softwood lumber accord.
Major features of the agreement are listed below.
- Washington will remove punitive duties on Canadian softwood on condition that Ottawa impose export taxes of up to 15 percent on U.S.-bound wood when the price of lumber drops.
- The U.S. will keep about $1 billion of the $5 billion in duties collected from Canadian lumber companies since 2002.
- Canadian exports would be allowed to continue at about 34 percent of the U.S. market but will face quotas if the price of lumber falls too far.
- The deal is for 7 years with a possible two year extension; however either country can opt out after three years by giving notice after 23 months.
- Neither country may launch trade-related lawsuits
- while the agreement is in force, instead neutral trade arbitrators will provide final and binding settlements of disputes.
- for 12 months after the deal is cancelled provided that the U.S. terminates the agreement.
And The Winners Are...
George Bush demanded that the decades-old softwood dispute be resolved by his birthday deadline. He should celebrate this achievement, and the fact that the U.S. won nearly all major concessions of the deal.
The U.S. timber industry is happy because the Canadian export tax will drive up the cost of lumber exported to the United States, severely reducing competitive pressures on U.S. producers. This allows U.S. lumber companies to charge American consumers more for softwood products and thus rake in more money.
Prime Minister Stephen Harper and his spin masters may be excited about the potential photo opportunity with the U.S. president on July 6 now that short-term peace with Canada's largest trading partner ostensibly has been achieved.
However, many Canadian think that allowing the U.S. to keep a billion dollars is outrageous given that seven decisions by the World Trade Organization and other hearing panels have agreed that the U.S. is not entitled to any of that money. To add insult to injury, in the past the U.S. has used revenues from the import duties to fund lawsuits against the Canadian lumber firms.
Provincial leaders, particularly those in Ontario and British Columbia, feel shortchanged by the agreement and believe that Harper should have played a stronger game in advancing Canada's trade interests. A $5 billion refund would have been a Canadian victory, just as a full seven year term for the new trade agreement would have been a champagne moment for both countries.
It was the U.S. who demanded - and obtained at the eleventh hour - the agreement's escape clause after three years.
As the deal now stands, Canada's stressed-out lumber industry has to play by rules that the U.S. dictates.
Stephen Harper has set a dangerous precedent which imperils the spirit of North American Free Trade Agreement (NAFTA) for all exports and imports.
Happy birthday, George.
For an example of an American-dominated interpretation of free trade, please read our article US-Cuba Trade A Disgrace.
Daniel Workman - A senior business and finance writer who also does French translations, notably international trade and insurance materials.
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