President Obama’s address to the House of Commons on Thursday touted the benefits of free trade and the co-operative relationship between the U.S. and Canada.
While many of his remarks received thunderous applause, his silence on a major trade dispute that has been flaring up between the two neighbours for centuries was just as deafening. It was only after the speech that a joint statement by Obama and Trudeau on the status of negotiations for a new softwood lumber agreement was quietly released.
The positive news is that negotiations for a new agreement are ongoing. Yet, with just over three months to go before the U.S. can legally impose high tariffs on Canadian softwood lumber crossing the border, we’re nearly out of time to secure a new deal.
While acknowledging “significant differences remain,” the two leaders laid out a framework for negotiations moving forward. Features of particular importance to Canada are capping Canadian market share in the U.S., making provisions for regional exclusions, and continuing joint market development.
Capping market share
The 2006 Softwood Lumber Agreement (SLA) capped Canada at occupying a maximum of 34 per cent of the U.S. softwood lumber market. This was a response to U.S. lumber producers’ perpetual fear that “subsidized” Canadian softwood would take over the market to the detriment of domestic producers. In the last decade, Canada’s capacity to occupy market share in the U.S. has been decreasing due to effects of the Mountain Pine Beetle. Currently Canada holds about 27 per cent of the market, and is projected to hold 25 per cent a decade from now.
Negotiations over the mechanism used to manage trade may be more contentious than getting an agreement on the cap itself. Canada favours the structure of the recently expired SLA, where Canadian companies shipping lumber into the U.S either paid an export charge of between zero and 15 per cent (depending on the price of lumber) or a combination of an export charge and quota. The U.S. will push for more restrictive measures; the U.S. Lumber coalition reportedly favours an across-the-board quota system.
Regional exemptions
Canada will be pushing for a deal that recognizes regional differences, something that has existed in the last two agreements. Provincial policies govern timber harvesting, so systems vary across the country. Regional provisions are of particular importance to Quebec. That province made changes to its stumpage system several years ago to appease U.S. complaints of subsidization, and would like to be excluded from any new agreement, much like Atlantic Canada always has been.
Joint market development
It’s encouraging to see the two sides continue to acknowledge joint market development. Something from the last SLA that does not attract a ton of attention was the creation of the Binational Softwood Lumber Council. Canada and the U.S. used this to build the market for softwood lumber abroad and counter campaigns by other building materials like steel and concrete to build up softwood lumber use in the U.S. construction sector. Both benefit producers on either side of the border.
Down to the wire
Getting a new softwood deal by October is far from a sure thing, and getting a deal at any cost is not particularly useful. As negotiations continue, Canadian lumber companies will be looking for ways to hedge against two things that could happen this fall – the imposition of U.S. tariffs and the possible election of a more protectionist administration. Western Canada in particular is well-positioned to take advantage of growing softwood demand in Asia and even Mexico. Canadian companies may also look for further acquisition opportunities in the U.S., made even more attractive by the low Canadian dollar.
Naomi Christensen is a policy analyst at the Canada West Foundation and author of Branching Out: Preparing for life without a Softwood Lumber Agreement.