Canada’s softwood lumber exporters are hoping the new federal government will negotiate another Softwood Lumber Agreement (SLA) with the U.S. to replace the recently expired deal – and fast.
But so too should we be imploring Ottawa to commit to the Trans-Pacific Partnership agreement (TPP). Without the security blanket of managed trade with the U.S. through an SLA, seizing opportunities to grow Canadian softwood exports in other markets is the only way to keep the softwood sector healthy.
Countries that belong to the TPP have markets that are increasingly hungry for softwood imports, such as Vietnam. At the same time, Canada will have to compete with large softwood exporters within the TPP such as Chile and New Zealand.
Here is how the TPP tariff measures by participant country relate to softwood:
The U.S. has no tariffs on softwood imports but it has a history of slapping countervailing or anti-dumping duties on Canadian exports. For decades, the U.S. has claimed Canadian lumber is subsidized (because most harvesting occurs on Crown land). With the risk of new action after a one-year truce on trade litigation expires, Canada needs to discover new opportunities to export softwood into other, soon to be tariff-free, markets.
Japan is the third largest customer for Canadian softwood, behind the U.S. and China. For Alberta, Saskatchewan, and Manitoba, it is the second largest customer. The TPP will be our first trade agreement with Japan.
Tariffs on softwood products of six per cent will be eliminated as soon as the agreement comes into force. Tariffs on SPF lumber will be halved upon entry into force (EIF), from 4.8 per cent to 2.4 per cent. The lower tariff will be eliminated in 15 years.
Japan has also placed a safeguard measure on SPF lumber from Canada. For each year after the TPP is implemented, the agreement spells out an aggregate volume of Canadian SPF that can be imported. Japan can place a “safeguard” tariff on any amount above that trigger level for the remainder of the year. The trigger level increases every year, and the safeguard measure will remain in place even when tariffs on SPF are zero.
Mexico has tariffs of five per cent on some softwood products, like SPF. These tariffs will be eliminated for all TPP countries upon EIF.
Although Mexico is the most accessible market to western Canada after the U.S., less than one per cent of Canada’s softwood lumber exports are shipped there. Our competitors within the TPP are more active in Mexico than we are; the U.S. supplies more than half of Mexico’s softwood imports; Chile and Peru are also suppliers.
Vietnam does not have an import duty on softwood lumber coming into the country.
Vietnam charges its domestic producers export tariffs of five or 20 per cent on softwood shipped abroad. By year 11 of the agreement, these will be reduced to zero.
Malaysia does not have import duties for softwood. It charges its domestic producers a cess (tax) on softwood shipped outside the country. Malaysia has exempted its softwood cess from the agreement; it cannot increase the cess but does not have to eliminate it.
Australia’s tariffs of five per cent on a variety of softwood lumber products will be eliminated, for all TPP countries, when the agreement comes into force.
Canada’s exports of softwood to Australia are less than one per cent of our total softwood exports, but it is our third largest softwood lumber customer among the TPP countries (after the U.S. and Japan).
Similar to Australia, New Zealand places a five per cent tariff on several softwood lumber products. The tariffs will be abolished for all countries upon EIF.
New Zealand is Canada’s fourth largest softwood customer among TPP countries but also one of our major competitors for global softwood lumber market share.
Chile’s tariffs of six per cent on softwood lumber will be eliminated for all countries upon EIF.
Like New Zealand, Chile is a major exporter of softwood and a Canadian competitor.
Peru has zero tariffs for some softwood products, and a nine per cent tariff for others. It will be eliminated for all countries upon EIF.
Canada exports very little softwood lumber to Peru, mainly due to high transportation costs. Chile supplies more than 90 per cent of Peru’s softwood imports.
Brunei, a small but rich country, has one of the highest softwood tariffs of any TPP country, at 20 per cent. These will be reduced to zero for all countries when the TPP is implemented. Canada exports very little softwood to Brunei.
Singapore does not have tariffs for softwood lumber.
Note: The above information relates to TPP measures regarding HS code 440710.
– Naomi Christensen is a policy analyst