U.S.-Canada Lumber Trade Dispute - Analysis and Projection

EXECUTIVE SUMMARY The United States and Canada have had a long lasting trade dispute over Canada's exports of softwood lumber. U.S. lumber industry claims that Canada's exports are subsidized, and has successfully petitioned the U.S. Government to impose countervailing and antidumping tariffs on imports from Canada. The tariffs have varied in amounts and durations and have had serious consequences for the U.S. building industry and Canada's exports. Interim resolutions have been negotiated to resolve the dispute, but the underlying conflict is projected to endure. Keywords: Canada, Trade, Lumber, Tariff, Dispute. INTRODUCTION - HISTORY OF DISPUTE The United States and Canada are each other's largest trading partner. Yet this relationship is not without disputes. The most contentious is the conflict over trade in softwood lumber. Softwood lumber is one of Canada's largest exports to the United States. In 2005 alone, Canada's provinces shipped 21.5 billion board feet of lumber valued at 7.4 billion U.S. dollars. The dispute has been around since 1840s when debate started in the US over imported Canadian wood, and flared again in 1890s, 1930s, and 1980. While resolutions of limited durations had been introduced, trade barriers primarily in the form of U.S. countervailing (CVD) and anti-dumping (ADD) duties/tariffs amounting to about 100 million dollars a month continued to be imposed. In the last 25 years, and since 1981, the conflict progressed from one dispute to another. In 1981, U.S. lumber industry petitioned the U.S. Department of Commerce (DOC) to investigate Canada's lumber exports for the possible imposition of CVD. In 1983, the DOC found that the amount of subsidy, if any, was less than 0.5 percent, and that Canada's stumpage system did not amount to countervailable subsidies. DOC concluded that Canada's system was a reasonable method of establishing stumpage prices which do not vary widely from U.S. prices. In 1986 the U.S. lumber producers again petitioned for CVDs on Canadian softwood lumber. DOC this time agreed with the petition and found the Canadian stumpage fees to be in effect a form of subsidy of about 15 percent. The DOC lumped all forest product industries such as wood products, pulp, and paper industries as one vertically integrated industry, even though Canadian lumber producers were not involved in paper-derivative industries. However, in December 1986, Canada entered into a Memorandum of Understanding with the United States to voluntarily impose 15 percent export duties on Canadian softwood exports to the United States. The agreement lasted for five years and by the end of which, Canada's provinces increased the level of stumpage fees and other forest management issues that the U.S. government approved as replacements for the export taxes. The Memorandum expired in 1991. But later that year, under pressure from industry, U.S. Trade Representative initiated a new investigation that led to imposition of CVD of 14.48 percent. This CVD was the US first CVD case against Canada after having ratified the Canada U.S. Free Trade Agreement (CUSTA). Canada challenged the U.S. decision under chapter 19 of CUSTA which provides for the binational dispute settlement procedures. The panel asked the International Trade Administration (ITA) for further examination of their findings and then asked ITA to reverse its decision on subsidies. The ITA finally complied and terminated the CVD order. In 1996, the United States and Canada formulated a Softwood Lumber Agreement (SLA) to introduce a restricted trade regime for five years. SLA capped Canadian duty-free exports at 14.7 billion board feet. Exports above that level would face substantial incremental tariffs. The agreement lasted five years, at the end of which, another round of U.S. allegations were launched accusing Canada of subsidizing and dumping softwood lumber into the United States. Immediately after the expiration of the SLA, the US lumber industry, represented by the Coalition for Fair Lumber Imports, filed two petitions with the ITA and ITC in April 2001. …

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