By Naomi Christensen
In TheProvince.com

Oct. 10, 2015

 

Most of us will not be agonizing about the end of the Canada-U.S. Softwood Lumber Agreement (SLA), which expires the same day we settle in for our Thanksgiving dinner. The thousands of Canadians who rely on the softwood sector for employment also need not fret.

Instead, they should be thankful they can grab hold of the opportunities the Trans-Pacific Partnership agreement (TPP) presents.

On Oct. 12, the nearly decade-old SLA dies a quiet death. Canadian softwood exporters will transition from security to limbo but have a year to prepare for the new reality of trade with their largest customer. A clause in the SLA prevents either country from taking trade action against the other until October 2016.

The U.S. has shown little interest in talking turkey about a new SLA. The TPP negotiations among 12 countries have dominated its agenda, and the challenge of getting Congress to pass the TPP will be that country’s next focus.

The U.S. has been focused on ongoing trade disputes with China, the largest supplier of American imports. And with the U.S. election cycle in full swing, and domestic producers vocally opposed to another agreement, a new softwood deal seems unlikely. The Canadian government, provinces and industry have reiterated their preference to renew the SLA under the existing terms, to no effect. We need to take the hint and move on.

Over-reliance on the U.S. market makes us vulnerable. The TPP suggests that, in the future of international trade, competitiveness will stem from being active in not only large economies but in growing markets, as well.

The customer base for Canadian softwood lumber is much more diverse than when the SLA came into force. However, the U.S. remains our biggest customer – by far. In 2014, 66 per cent of Canada’s softwood lumber exports were shipped to the U.S., and 92 per cent went to the three largest world economies (the U.S., China and Japan). As in the past, protectionist tariffs from the U.S. would place a significant financial burden on Canadian exporters. Likewise, future programs promoting domestic wood over exports in key markets, like Japan’s Wood Use Points Program – thankfully in place for only one year – could pose further difficulties.

The Canada West Foundation’s recent report, Branching Out: Preparing for Life without a Softwood Lumber Agreement, recommends a double-pronged approach to maintaining a strong softwood sector: continuing and enhancing initiatives within the U.S. market to strengthen the Canadian brand and to mitigate future trade disputes; and, renewing focus on market diversification – specifically in markets where demand for softwood lumber is growing.

These opportunities exist close to home, like Mexico, as well as in growing Southeast Asian markets. After the U.S., Mexico is the most accessible market to western Canadian softwood. Yet the U.S., Chile, and even Brazil, a country with which Mexico does not have a trade agreement let alone a rail connection, export more softwood into that market than Canada. Last year, less than half a per cent of Canadian softwood exports went to the Mexican market. There is room to grow.

In Vietnam, the rapidly growing furniture sector is increasing demand for softwood, yet Canadian exports to that country have been declining since 2009. Both Mexico and Vietnam are part of the TPP, but Canada faces aggressive competition for these and other markets from Chile and New Zealand, which are also part of the TPP.

While the TPP will level the competitive playing field for softwood in some markets, making inroads will require time and effort. We know that Canadian softwood can flourish in this region; we already hold the majority of market share for softwood imported by the Philippines.

The best scenario for Canada is to be a preferred supplier in many markets. To achieve this, we must be nimble. Expanding our customer base will make us less reliant on the U.S., and therefore less vulnerable to the consequences of U.S. trade action. If Canadian softwood lumber exporters put in the time and effort to investigate opportunities in new markets and continue diversifying, then they should have even more to be thankful for next October.

Naomi Christensen is a policy analyst with the Canada West Foundation and author of Branching Out: Preparing for Life without a Softwood Lumber Agreement, available at cwf.ca