Renewed softwood lumber dispute may fan U.S. protectionist flames in other industries
While Canadian and U.S. trade officials negotiate a new softwood lumber agreement (a one-year “standstill” period expired last week), Canadian officials have privately indicated that the price of an agreement demanded by the Americans is currently too high. While the U.S. government’s position has not been publicly revealed, it likely involves a limit on Canadian exports of softwood lumber that is well below what Canadian officials are currently willing to accept.
Under the expired agreement, U.S. duties on Canadian softwood lumber exports to the U.S. would only be imposed when lumber prices fell below a certain level. U.S. lumber producers seem unwilling this time around to accept a “trigger price” or other safeguards against duties being levied on southbound shipments of lumber.
The main point of contention in the current trade dispute continues to be, as it has been in the past, provincial government stumpage programs. The vast majority of standing timber used by Canadian softwood lumber producers originates from lands owned by the Crown. Provincial governments charge private-sector licence holders stumpage fees to harvest timber from Crown lands. The U.S. government has, in its reviews of provincial government stumpage programs, argued that those provincial governments provide a subsidy by selling the rights to harvest timber for less than adequate remuneration.
It seems reasonably clear after decades of negotiations and formal trade-dispute resolution procedures that the U.S. government would reject any initiatives proposed by provincial governments short of privatizing Crown lands or allowing an open market for purchasing logs for export that allows U.S. companies to bid on an equal basis with Canadian mills for raw logs. At present, it seems unlikely that these latter changes are acceptable to provincial governments, especially the British Columbia government. In the absence of a new agreement, Canadian producers of softwood lumber once again face years of protracted legal proceedings accompanied by punitive countervailing duties. The associated costs and uncertainty about access to the U.S. market will discourage needed investment to improve the efficiency of Canadian sawmills, as well as to improve harvesting and Silviculture techniques.
Renewed acrimony surrounding Canadian softwood lumber exports will also poison the bilateral trade negotiation environment more generally. In particular, it might stall progress on the difficult job of reducing regulatory-related bilateral trade barriers. It might also discourage cooperative initiatives to improve border security in order to reduce cross-border transportation costs. Perhaps most worrying, the success of U.S. lumber producers in getting punitive duties imposed on imports of lumber from Canada might inspire U.S. producers in other industries to press protectionist claims against foreign rivals.
In this context, U.S. importers and Canadian exporters have a strong shared interest in having the two governments reach a quick and durable settlement of the renewed softwood lumber dispute. Unfortunately, given the current anti-trade mood of a substantial portion of the U.S. electorate, any such happy outcome seems unlikely.