The one-year standstill period for launching trade action under the 2006 Canadian-U.S. softwood lumber agreement has now expired. So get ready for a very damaging timber war to begin.
If the past is any indication, this bilateral conflict is not likely to end any time soon. In fact, the chances of an early lumber truce are somewhere between slim and none – and I suspect that slim has already been chopped down.
Dust-ups with the United States over the export and harvesting of Canadian softwood lumber (and other forestry products, such as wood shakes and shingles) go as far back as the late 1800s. Needless to say, they have been a constant splinter in Canada’s side ever since and frequently bedevilled the Canadian-U.S. relationship.
The best that we’ve been able to do is to buy trade peace over lumber for stints of eight or 10 years with our American friends, sometimes less. In between periods of relative bilateral calm, we faced a steady barrage of U.S. trade harassment (one of the glaring omissions of the 1988 Canadian-U.S. free trade agreement) against our lumber exports (which exceed $6-billion annually).
Washington’s principal objection has always been Canada’s forestry-management practices and, more specifically, its use of low cost stumpage fees on trees harvested on Crown land. It maintains, wrongly according to several previous dispute tribunal rulings under the North American free-trade agreement, that Canada unfairly subsidizes its softwood lumber sector – to the detriment of uncompetitive U.S. sawmills in various states.
Unfortunately, these mill owners have friends in the corridors of power in the White House and the U.S. Congress. They also have a hard-charging, unyielding and relentless lobby group known as the U.S. Lumber Coalition, which really controls the U.S. process from a political and negotiating standpoint.
Here’s what you can expect going forward: The U.S. lumber lobby will be moving swiftly to launch a case against Canada for unfair trade practices and for the imposition of stiff import duties/tariffs against Canadian softwood (which can be retroactively collected) in five or six months. It will follow that up with some unreasonable demands on the Canadian government to curtail substantially lumber exports to the U.S. marketplace. (One suspects that U.S. lumber interests will be looking to decrease Canadian market share to less than 25 per cent of the American market – down from its current 31 per cent – through some form of an unacceptable quota system.)
A failure to comply will be met with further nastiness, threats of retaliation and a promise to litigate the timber case for as long as it takes for the deep-pocketed U.S. lumber lobby to prevail. The last time that happened, in the early 2000s, the Americans collected something like $5.3-billion (U.S.) in duties and returned only $4-billion under the 2006 softwood lumber accord. The stage is obviously set for a repeat performance.
Prime Minister Justin Trudeau will also have to deal with the pressures from various regions and provinces in Canada. In particular, British Columbia, as Canada’s largest exporter of forestry products to the United States, will want the federal government to cut a quick deal that will lessen the negative impact of a prolonged dispute on B.C. (where the Liberals have 17 seats).
Quebec (where the Liberals have 40 seats) will want to make sure that its provincial lumber sector, often at odds with B.C.’s, is also insulated from U.S. protectionism. And the Atlantic provinces, for their part, will be happy with a swift resolution of the issue – especially since most of the trees cut in this region are from privately owned lots (and thus exempted from the quota restrictions imposed on other provinces in the 2006 timber accord).
But the main problem for Mr. Trudeau is that he can’t sign a timber deal that substantially reduces the percentage of Canada’s softwood lumber share in the U.S. marketplace without upsetting Canadian premiers. And he is unlikely to be able to satisfy the demands of the premiers without attracting the ire of the U.S. lumber lobby, which will be ruthless in its quest to slash Canada’s share of the U.S. lumber market.
This lumber mess could eventually turn out to be Mr. Trudeau’s worst nightmare. Not only does it have the potential to aggravate further federal-provincial relations, but it could also poison bilateral relations with whoever occupies the White House in late January. More important, this dispute could very easily drag on for several years and create all kinds of headaches for the federal Liberals in the 2019 election campaign. Whither those “sunny ways?”