Fraser Forum

Growing U.S. protectionism threatens Canada’s forestry industry

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A tentative deal between Canada and the United States on softwood lumber expired at midnight on Oct. 12.

The ongoing softwood lumber war between Canada and the U.S. is largely due to American economic protectionism, or more precisely, American lumber interests. This is about American lumber companies upset about Canada’s growing market share in the U.S. market.

Looking at the two major candidates for the presidency, it appears that the trending protectionist mentality is unlikely to change and could have major negative repercussions in Canada’s already-ailing forest industry.

With a rebounding housing market, the U.S. is heavily dependent on the Canadian forest industry. After the temporary deal expired, some sources say the U.S. may file a petition to impose duties on Canadian lumber. 

In the early 2000s, the U.S. imposed a combined duty of 27.22 per cent and within months 15,000 workers in B.C. alone were let go. That province, as well as Ontario and Quebec, are particularly affected by this ongoing dispute.

The last softwood lumber deal ended in 2015 but was granted a one-year extension until it expired earlier this week. The extension was really about postponing litigation and not about true resolution of outstanding issues.

The essence of the American argument is that because most Canadian forests (outside the Maritimes) are provincially-owned Crown lands, and American forests are privately-held, this allows Canadian forest producers to sell their lumber at a lower price, thereby undercutting U.S. producers. The Americans allege this amounts to an unfair subsidy. The U.S. has collected billions of dollars from duties imposed on Canadian lumber. The duty acts as a tax on exported Canadian lumber.

The problem is this argument falls flat when subject to scrutiny. The U.S. was unsuccessful when the claim was made before the World Trade Organization (WTO). Earlier in the dispute, a binational panel found that the U.S. Department of Commerce’s allegations of unfair subsidization were not supported with substantial evidence. In March 2006, a NAFTA panel also found in Canada’s favour.

The dispute also led to changes in the way Crown timber harvests were auctioned off, so more market pricing was introduced into the Canadian system.

Canada can certainly challenge the duties, as they have done and won before NAFTA panels and the WTO, but the U.S. can still collect duties while the challenges wind their way through the system.

The U.S. can save all of that by hammering out a long-term deal with Canada that ends the allegations of illegal subsidies. The U.S. Department of Commerce should take a stand for real free trade between the two countries, and not just speak on behalf of wealthy lumber interests.

But, both Republican candidate Donald Trump and Democratic candidate Hillary Clinton have given very negative signs regarding their commitment to free trade between the two countries. Both are ripping into NAFTA and attacking global trade deals, which may eventually re-ignite a trade war and threaten many good Canadian forestry jobs in economically challenged regions.


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