For anyone thinking that the Obama administration’s decision on the Keystone pipeline represents a clearing of the Canada-U.S. decks — guess again.
Another major trade dispute is lurking just around the corner, and it’s on an all-too familiar topic: softwood lumber. Against the backdrop of a U.S. presidential election, the Softwood Lumber Agreement — which ushered in a nine-year truce for Canadian lumber exporters — expired on October 12. What’s more, the U.S. lumber industry already has a domestic ‘consultation’ underway to assess the current regime (unpopular south of the border) and that process is set to wrap up on November 22.
John F. Kennedy once said that while history had made Canada and the U.S. friends, it was economics that made us partners. Recognizing the critical role of Canada-U.S. trade in furthering an economic growth agenda, Prime Minister Justin Trudeau is keen to reboot the partnership that languished under the previous government. To get the relationship back on the right track, both the prime minister and International Trade Minister Chrystia Freeland must give the lumber file top priority to prevent it from defining the budding relationship between the Obama administration and the new Canadian government.
Over the last 25 years, the American lumber industry has frequently sought U.S. government restrictions on Canadian softwood lumber imports through the application of countervailing duty and anti-dumping laws — so called ‘trade remedy’ laws. Canada has consistently and successfully challenged these actions — seen as thinly-veiled protectionism — under the dispute resolution provisions of the World Trade Organization and NAFTA.
At the heart of the dispute is the amount of so-called “subsidies” Canadian lumber companies are alleged to have been provided by provincial and territorial governments. U.S. lumber companies tend to harvest wood from private land, whereas Canadian producers mostly log on Crown land — thereby (allegedly) paying lower input costs than their American counterparts. Realizing that trade stability was worth the costs of compromise, Canadian companies supported the now-expired deal and some wanted to see it extended. U.S. producers, on the other hand, are looking for a new deal.
There’s a lot at stake. Beyond the need to lift the cloud of uncertainty that comes with trade disputes, softwood lumber exports to the U.S. totalled $5.6 billion last year. They also account for thousands of Canadian jobs. But export levels can be even higher. In 2005, they totaled $8.4 billion. And despite sawmill closures and the mountain pine beetle infestation in B.C., recent trends suggest we could be back to those 2005 levels or even higher in the years to come.
A week before the last softwood deal expired, B.C. Premier Christy Clark highlighted the importance of stability in lumber trade and vowed to make this the first issue she will raise with Prime Minister Trudeau when the two leaders meet.
After an eight-year decline in the U.S. housing market, we are finally seeing signs of a rebound. Housing starts reached an annual rate of 1.2 million in September — the sixth straight month they’ve exceeded one million. Add to that a low Canadian dollar, and suddenly Canadian softwood lumber imports become a cost-effective, vital component of economic revitalization south of the 49th.
Yet despite the need for this Canadian product, the U.S. lumber industry is eager to launch a trade challenge. For American producers, the process makes it a win-win scenario: Even if a challenge fails, the U.S. government would put a temporary tax on Canadian exports while the case is in litigation.
With Prime Minister Trudeau and President Obama set to meet in the coming days and weeks, it’s critical for the federal government to advance arguments that position us for a calm and orderly resolution of this potential irritant as quickly as possible. First, Freeland should consult with her departmental officials and ensure a robust domestic consultation is put in place across the country.
Second, Canada must be ready and willing to explore all options, including legal action under the WTO and NAFTA, to challenge any protectionist moves by the U.S. government. Teams of lawyers are lined up already south of the border in anticipation of litigation, and Canada needs to marshall its own resources in kind.
Third, if the previous deal can be revived or an amended one can be secured, then the resulting business certainty would be a positive outcome. But a deal should be concluded if — and only if — it is in the interests of Canadians. In Kennedyesque terms, Canada certainly should ‘not negotiate out of fear’ — nor should we ‘fear to negotiate’.
The Canadian softwood lumber industry, and provincial, territorial and federal governments, will all need to be ready to help prevent this dispute from defining Canada’s vital relationship with its most trusted neighbour, friend and ally.