The long-standing lumber dispute between the US and Canada heating up…again

Lumber piles on Vancouver Island illustrate the major contribution of the forestry industry to the BC economy.

While it’s often pointed out that The United States and Canada share the world’s longest undefended border, the two “friends” also share one of the world’s longest running trade disputes — a dispute over Canadian lumber exports to the United States. The essence of the disagreement is Canada’s disapproval of US duties imposed on allegedly “subsidized” Canadian softwood lumber exports. For decades, the softwood lumber conflict has refused to go away. And the latest developments suggest there is little room for compromise on bilateral negotiations in the current iteration.

Canadian forestry industry interests generally see the tariffs as unproductive – hurting producers in Canada while harming consumers south of the border already dealing with inflation and supply chain issues.

Between 2017 and 2021, it has been estimated that the duties cost Canadian producers about C$5.6 billion to export the resource. Some two thirds of Canadian softwood lumber production – with British Columbia’s massive forests the dominant factor - is exported, with more than 80% flowing to the United States amounting to over $8 billion in value.

Unfair, Unjust, Illegal

In late August, Canada’s International Trade Minister Mary Ng said Ottawa is formally challenging as “unfair, unjust and illegal” a July assessment of the levies by the US Commerce Department.

“Canada is launching challenges to the latest U.S. countervailing duty determination under (CUSMA) Chapter 10 and to the latest U.S. anti-dumping duty determination before the US Court of International Trade,” Ng said.

The U.S. reduced its anti-dumping and countervailing duty rate to 7.99% from 17.6%, but Ng signalled that Canada would still fight the measures.

At the heart of the dispute: the low stumpage fees Canadian provinces charge for timber harvested from Crown land have been qualified as akin to subsidies since US producers must instead pay market rates.

What are stumpage fees? They are the price a forestry company pays to the landowner to harvest timber from a certain area. This price was initially set based on the number of trees harvested (or price per stump). Today, it is determined based on quantity units, such as cubic meters, board feet or tons.

In Canada, the forest areas are mainly located on land owned by the federal or provincial governments and the provinces lease these areas to forest companies for the purpose of timber harvesting. The stumpage rates are defined by law. On the other hand, in the United States a large portion of the forested land is privately owned (70%). Timber from the private sector is sold on the open market through different buyer/seller agreements – in effect on competitive auctions responding to market demand.

In the past, Canada has successfully argued that its stumpage fees are not a subsidy under the dispute resolution provisions of the World Trade Organization (WTO).

Canada is launching challenges to the latest US countervailing duty determination under Chapter 10 of the United States-Mexico-Canada Agreement (USMCA) and to the latest US. anti-dumping duty determination before the US Court of International Trade,” Ng indicated.

She added: “At every opportunity, I have raised the issue of unjustified U.S. duties on Canadian softwood lumber with my U.S. counterpart Katherine Tai, United States Trade Representative, and the need for both countries to find a mutually acceptable resolution to this dispute. Canada continues to remain ready and willing to discuss a negotiated outcome to the dispute that provides the stability and predictability the sector needs to ensure its continued growth and success.”

Stumped over Stumpage Fees

But, in response, Tai made it clear that negotiations must include Canada doing away with its longstanding stumpage fee regime. Eliminating “unfairly-traded Canadian imports” remains a priority for the Biden administration.

Tai’s office further stated: “We are prepared to discuss another softwood lumber agreement when Canada is ready to address the underlying issues related to subsidization and fair competition so that Canadian lumber imports do not injure the US industry.”

The U.S. Lumber Coalition reacted to Ng’s statement, saying it was pleased Canada was taking the dispute to the US Court of International Trade, rather than requesting a United States-Mexico-Canada Agreement (USMCA) panel for appeals.

“The Coalition has long believed that U.S. courts are the appropriate venue for resolving legal questions around the application of U.S. trade laws, and we are pleased that the Canadian parties have now agreed to pursue their claims before a U.S. judge,” said Andrew Miller, Chairman of the U.S. Lumber Coalition and CEO of Stimson Lumber.

“While the Coalition is continuing to evaluate its own issues for appeal, we look forward to defending the Department of Commerce’s antidumping determination as consistent with U.S. law,” added Miller.

He has also stressed that the import duties have been keeping the playing field level to allow the US domestic forestry and construction industries to thrive. “Failure to fully enforce the trade laws would only undermine long-term confidence in expanding capacity and jobs in the American softwood lumber industry.”

Increased European Sourcing

Meanwhile, Derek Nighbor, president of the Forest Products Association of Canada, has raised what he has called “a disconcerting trend” in bilateral trade. “Rather than sourcing from Canada to address the existing American lumber supply gap, European lumber imports are now displacing Canadian lumber imports as a result, of the ongoing Canada-U.S. softwood lumber dispute.

“In 2022, we witnessed offshore exports of lumber to the U.S. reach their highest levels since 2004-2006 with increased shipments from Germany and Sweden increasing by 17% and 27% respectively. In fact, European lumber exports to the U.S. have more than doubled since February 2021.

“It’s worth noting as we find ourselves in the sixth year of the current softwood lumber dispute that the U.S. charges no duties on that imported European wood.