Softwood Lumber Imports From Canada: History and Analysis of the Dispute

Softwood lumber imports from Canada have been of concern to U.S. lumber producers for many years because of questions about Canadian government timber pricing policies.In 1996, the United States and Canada reached a 5-year agreement on restrictions -a fee on lumber imports from four Canadian provinces in excess of the specified quota -that expires on March 31, 2001.Resolutions and bills have been introduced in recent Congresses that, had they been enacted, would have restricted lumber imports from Canada or eliminated the basis for restricting those imports.The 107 th Congress may also consider legislation on this issue.U.S. lumber producers argue that they have been injured by subsidies to their Canadian competitors.Stumpage fees (for the right to harvest trees) charged by the provinces are asserted to be subsidized (priced at less than their market value).In Canada, provincial government timberlands dominate the supply system, with longterm leases to private firms to assure stable timber supplies, and with timber priced administratively to assure financially feasible production.Private timberlands dominate the U.S. supply system, with competitive bidding to allocate and price most public timber.The use of administered prices by the provincial governments opens the possibility that the Canadian system results in transfers to the private sector at less than the fair market value.Major differences in tree species, sizes, and grades, in measurement systems, in requirements on harvesters, in environmental protection, and in other factors, however, make comparisons difficult, controversial, and generally inconclusive.Canadian log export restrictions are also asserted to be subsidies, because the restrictions assure more supply (less competition for timber) for Canadian producers.Evidence from the U.S. Pacific Northwest, where private logs can be exported but public timber cannot, indicates a substantial price differential, with higher prices for exported logs.However, Canada has recently challenged as GATT violations the U.S. trade law provisions that include export restrictions as subsidies.Injuries to U.S. lumber producers have also been difficult to establish decisively.Canada's share of the U.S. lumber market has risen substantially, from less than 7% in the early 1950s to more than 35% in the mid-1990s.Under the 1996 agreement, the quantity of imports has continued to rise, but the market share has been relatively stable.In the past two years, the dispute has also included whether certain softwood products are modified construction lumber subject to the 1996 restrictions (the U.S. view) or are specialty products outside the agreement (the Canadian view).The impact of import restrictions on domestic lumber prices is not easily estimated, but supply/demand theory suggests that restrictions would put upward pressure on U.S. lumber prices.Other factors are also important.The persistence of the dispute may reflect tensions between increasingly free-trade U.S. policies and protection from imports available under U.S. trade law.Also, probable differences in environmental protection complicate cross-border comparisons.

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