In Alberta’s $4-billion a year forest products industry, concerns about the ending next month of the Canada-United States softwood lumber agreement have never been higher.
“If you look at the significant challenges facing Alberta’s forest sector, if Item 1 is the mountain pine beetle, Item 2 is the future of the softwood lumber agreement,” Paul Whittaker, president and chief executive of the Alberta Forest Products Association, said in an interview this week.
The agreement, set to expire Oct. 12, will be front and centre at the AFPA’s annual general meeting next week in Jasper.
“It’s not ideal, it’s not perfect — it’s not free trade, it’s managed trade,” Whittaker said. “It is not a perfect solution, but it provides a stable and predictable platform for trade with the most significant, to Alberta, external market that we have.”
In 2014, AFPA member companies produced $1.3 billion worth of lumber. Of the total, 24 per cent was shipped to the U.S. to feed its rebounding housing industry. Another 11 per cent went to Japan, China, South Korea and Taiwan. Sixty-five per cent stayed in Canada.
When the trade deal expires, nine years of “relative trade peace … could all be torn asunder,” Whittaker said. But the U.S. would be prevented from imposing any new sanctions for 12 months.
Trade disputes over Canadian softwood lumber exports to the U.S. have gone on for more than a century.
U.S. producers say Canadian lumber is subsidized because forestry companies here pay set stumpage fees to harvest timber on Crown land. In the U.S., most of the lumber supply is on private land, and rights to harvest on public land are determined by auction.
The U.S. lumber industry has frequently sought restrictions on Canadian imports. The countries have come to agreements that apply charges and/or volume restraints on Canadian exports while prohibiting the U.S. from launching new cases under its countervailing and anti-dumping laws.
The most recent agreement came into force in October 2006. Its initial seven-year term was later extended.
The AFPA’s position has been that it should be renewed again “as is,” Whittaker said. But he said the association is open to a new deal, “obviously built on the platform of the old agreement.” The federal and provincial governments, and other industry groups, also want a renewed or renegotiated deal.
But the U.S. is not showing any signs it is interested, said Naomi Christensen, author of a new report for the Canada West Foundation.
“A lot of factors have changed since the agreement was put in place, and those changes indicate that the U.S. wouldn’t really benefit, from their point of view, from signing another one at this time,” Christensen said.
For example, she said, lumber prices have been high enough that the trade agreement’s export duties, while currently in effect, didn’t apply in 24 of 32 months ending in August.
Also, the U.S. is busy negotiating larger trade deals such as the Trans-Pacific Partnership. And because the pine beetle infestation has decreased Canada’s timber supply, the Canadian industry now poses less of a threat to U.S. producers.
Christensen’s report, titled Branching Out: Preparing for Life Without a Softwood Lumber Agreement, recommends Canadian producers start opening up new markets in Asia and Mexico while seeking new markets in the U.S. for value-added Canadian products.
“The best scenario for Canada would be to have a diversified customer base and demand for our product in more than one area,” she said.
“We can’t bank on another softwood lumber agreement, and we do need to be thinking about what to do going forward to make sure that our industry remains strong, even if we don’t have the security of managed trade with the U.S.”
Whittaker said the AFPA sees opportunities to export Alberta lumber products into India, Indonesia and Mexico, and hopes the new provincial NDP government will be helpful in promoting international trade.