Canada and the United States are on the brink of yet another softwood lumber war, fuelled by a drastic jump in BC lumber exports to the US and growing anti-trade sentiment. Source: The Squamish Chief
American sawmillers say they are ready to fire the first shot in what would be the fifth lumber trade war since the 1980s, if negotiations now underway don’t result in an agreement by October 12, when a one-year standstill on trade action expires.
However, growing anti-trade sentiment is making it harder to reach a deal, Canadian International Trade Minister Chrystia Freeland said over the weekend.
“There is no guarantee we are going to get to a deal that works for both sides,” she said in an interview with Bloomberg Television at the G20 Summit in Hangzhou, China.
With no deal in sight, the influential US Lumber Coalition lobby group has assembled an entire office full of documents against Canada’s lumber industry, which it plans to submit to the US government after October 12.
That will likely kick off a chain of events that will result in duties being applied to Canadian lumber by next year.
The American industry wants a firm cap on Canadian exports south of the border, which have been increasing in step with the US housing market recovery. Canadian producers are divided, but all agree that no deal – and the imposition of duties that would follow – is better than a bad deal.
The two countries have been in talks over a softwood deal since the last one, the 2006 Softwood Lumber Agreement, expired October 12, 2015.
The Americans allege Canadian wood is subsidized, but the dispute is really all about market share, said Russ Taylor, president of Wood Markets, a Vancouver-based consulting firm that tracks the lumber industry worldwide.
The US does not produce enough lumber to meet all its domestic needs and its construction industry relies on Canada to make up the difference.
Five years ago, when US housing starts were down, Canada accounted for 27% of the wood consumed in the US. By August 31, its share had grown to 34.5%. More than half that volume comes from BC.
The US grievances, Taylor said, come down to one thing: as the American housing market recovers and lumber demand picks up, Canada – aided by a low Canadian dollar – is directing more lumber south of the border, scooping up those additional lumber sales.
“If the currency had not changed the way it did, because of the collapse of oil prices, I don’t think we would be having this conversation,” Taylor said.
BC, which has the largest lumber companies in the country, is a prime target of US discontent.
BC government stats show that the dollar value of its lumber exported to the US for the first six months of 2016 is up 40% over the same period of 2015, when the Softwood Lumber Agreement was still in effect.
BC lumber producers alone now account for 22.3% of the dollar value of US lumber consumption, up from 17.2% in 2015.
Susan Yurkovich, president of the BC Lumber Trade Council, said there’s a dispute raging now in both countries over which data accurately reflects what is going on in the market.
US data is being questioned by US analysts and BC’s dollar-based stats don’t show volumes.
Lumber prices have climbed 20% to 25% over the same period, which accounts for much of the BCincrease, she said.
She also noted that BC has been shipping less to the US over the last several years because it has opened up new markets in Asia.
Imposing a quota on BC producers at this time would disadvantage them as demand is shifting back from China to the US.
“We feel pretty strongly that quota is something that distorts the market,” she said. “We worry about anything that artificially keeps prices higher than they would otherwise be, and what that does in terms of pushing people to substitute products.”
BC wants a “soft cap” on exports, such as a tax regime similar to the one agreed to in the former Softwood Lumber Agreement, she said.
Taylor said the gap between both sides does not bode well. The lumber sectors in both nations don’t have any incentive right now to settle, he said, as neither side has enough negotiating leverage to bring the other around.
David Yocis, lead lawyer representing the US Lumber Coalition, said the coalition is ready to file, but he won’t say when.
“We are free to file on October 13,” Yocis said. “If there is no new agreement, sooner or later we will file. We can decide, because we are in control of that, whether it is to our advantage to file immediately, or whether it is to our advantage to wait.”
Mr Yocis said the coalition intends to seek a countervailing duty and an anti-dumping duty on Canadian lumber, as well as seek redress for injury it says the Canadian industry has caused the US sector.
In the previous softwood dispute, the US imposed duties totalling 27%. It took five years of litigation by Canada at a cost of more than US$US100 million to have the duty reduced to zero. By that time, the US had collected $5.4 billion in duties. Only US$4.4 billion was returned.
Henry Spelter, of the US consulting firm Forest Economic Advisors, said he expects a prolonged legal battle once again.
“Given the increased protectionist political mood in the U.S., those inclined to bet should likely put their money on a new round of litigation,” he said.
The softwood dispute is the largest, longest lasting and most complex trade dispute in the history of Canada-US relations. The first of the four previous trade wars began in 1981 when US producers alleged lumber companies in BC were subsidized by the provincial government.
Over the 35 years since then, it has cost the Canadian economy jobs and revenue.
Here’s a brief explanation on why the lumber wars between Canada and the United States have dragged on, and on and on. It comes from Don Wright, who was deputy BC forests minister during the last dispute, which began in 2001.
Mr Wright, who is now president of Central 1 Credit Union, wrote then that the industries in both countries are trapped in a “circle of hell.” It starts when US stakeholders notice that for whatever reason – global market forces or increased US demand – Canada’s share of the US lumber business is on the rise. U.S. lumber consumption is increasing but American producers find that they are unable to increase their margins. Their solution – raise Canadian lumber costs. They petition the U.S. government to impose duties.
The duties curtail Canadian exports and push prices higher in the US making lumber producers there very happy. Their margins increase. But it’s only temporary, because higher lumber prices lead landowners to seek higher timber prices.
After a few years, the US sawmillers again see their costs rising and their margins eroding. They wonder what happened, and look north to Canada, which, because it has more timber, often has lower operating costs.
Their solution? Seek another countervailing duty to raise Canadian costs. The circle of hell continues.
