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The Politics of Softwood Lumber
What are the key issues in the dispute?
The softwood lumber dispute comprises a number of different issues,
making it difficult to reach a resolution. They include:
- Stumpage fees;
- Accusations of lumber dumping;
- US concerns over Canada’s share of the US softwood
lumber market; and,
- The implications of Canada’s multi-jurisdictional forestry
management system.
Stumpage Fees:
A major issue in the softwood lumber dispute involves Canada’s
system of stumpage fees, whereby forest companies pay a fee to
a provincial or territorial government for the right to harvest
and/or process wood on a specific piece of land. The US position
is that Canada’s provincial and territorial governments
are subsidizing forest companies by setting the stumpage fees
too low. This gives Canada’s softwood lumber exporters
an unfair pricing advantage over American softwood suppliers,
who must sell their lumber at a price that reflects the real
economic cost of harvesting the wood.
International trade laws stipulate that if Canada is subsidizing
the softwood lumber industry, the United States has the right
to even out the situation by applying a “countervailing
duty” to imports of Canadian softwood lumber. Separate
NAFTA panels have ruled, however, that Canada’s system
of stumpage fees does not meet the legal definition of a subsidy.
This said, it is also a fact that stumpage fees normally do not
reflect the true economic costs of harvesting and processing
the wood.
Is Canada Dumping Lumber?
A more recent issue in the softwood lumber dispute involves American
claims that Canadian forest companies are “dumping” lumber – pricing
softwood lumber in the US market at a price below the cost of
production, or, at least below the price for which it would sell
in Canada. The Americans allege that “dumping” has
allowed Canada’s softwood lumber exporters to claim a higher
portion of the American softwood lumber market than would otherwise
be the case. In this regard, the US has won several decisions
in NAFTA and the WTO on this issue, although both concluded that
the mechanism used by the United States to determine the percentage
of duties to be applied was flawed. Accordingly, the percentage
of antidumping duties applied to imports of Canadian softwood
lumber has been significantly reduced.
Canada’s Percentage of American Softwood Lumber Market
Complaints by the United States about stumpage fees and dumping
tend to increase when Canada’s share of the American softwood
lumber market rises above a certain percentage. Previous agreements
between the United States and Canada, such as the five-year “Memorandum
of Understanding” implemented in 1996, were designed to
establish a quota on Canadian softwood lumber imports at approximately
30 percent.
The Implications of Canada’s multi-jurisdictional forestry
management system
Attempts to resolve the ongoing softwood lumber dispute between
Canada and the United States are complicated by the number of
players involved. Instead of dealing with one government (Canada),
US trade negotiators must enter into talks with, and understand
the forestry management systems of, several provincial governments.
The process is further complicated by the frequent lack of consensus
among the provinces over how softwood lumber negotiations should
proceed; a concession that one province is willing to make in
order to reach an agreement may be unacceptable to another. Furthermore,
the provinces may also disagree with the federal strategy. In
this regard, despite recent tough talk by the federal government
on this issue, the provinces most affected by the dispute have
made it clear that they are more interested in reaching an agreement
with the Americans than starting a “trade war.” (For
example, in 2004, the British Columbia government announced it
would move to a market-based system for determining stumpage
rates of lumber harvested in BC’s coastal regions).
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