It’s official. This week, the U.S. Commerce Department announced it will impose countervailing duties on Canadian softwood lumber entering the U.S. – an average of 20 per cent.
In June, it will conclude a second investigation initiated by the U.S. lumber lobby, and is expected to slap additional anti-dumping duties of 20 to 30 per cent on Canadian lumber.
The duties themselves are no surprise. Canada’s softwood lumber trade relationship with the United States has been fraught since its inception. The reality is that the softwood lumber dispute flares up every decade or so when the U.S. lumber lobby initiates trade action against Canadian softwood lumber. This time Canada should finally get the message: market diversification matters.
The best scenario for Canada is to be a preferred supplier of softwood with high demand in multiple markets. The more customers we have, the less reliant we are on the U.S. and, as a result, we have more leverage with them when negotiating a new softwood deal.
Last week’s trade mission to China by the federal trade and finance ministers and softwood lumber representatives to to tout Canadian wood products is encouraging. While China is our second largest softwood customer, since the U.S. housing sector recovery began, Canada’s softwood exports to China have been declining as exports to the U.S. increase. Last year, 10 per cent of Canadian softwood exports were sent to China – down from the peak of more than 21 per cent in 2011. While Chinese economic growth has been slowing since 2010, there is likely still room for Canada to send larger quantities of softwood to China. There are also still regions in China where Canadian wood products are not well known. With export duties now making it more expensive to sell into the U.S., Canadian exporters – particularly those in B.C. and Alberta with close access to west coast ports – will be looking for markets to pivot exports to.
Ottawa’s announcement this week of further trade missions, including to markets beyond China such as Vietnam, is even more encouraging. Canada did a great job breaking into the Chinese market while the last softwood lumber agreement was in place, but there are other markets with growing demand for softwood lumber that deserve consideration.
In 2016, Canada exported about $120 million worth of softwood lumber to the 10-country ASEAN region of Southeast Asia. B.C.’s Crown corporation Forestry Innovation Investment (FII) identifies Vietnam, Thailand and Indonesia as other potential markets in which to grow softwood exports. These countries have booming packaging and furniture sectors that require softwood. While Canada has been losing market share in Vietnam, our competitors like Chile and New Zealand are aggressively targeting these same markets.
In ASEAN, the largest customer for Canadian softwood is the Philippines, where Canada holds a majority share of the softwood lumber market; clearly we can be competitive in the region. The main barrier to growth in these countries is lack of knowledge about Canadian wood products.
Government – whether Ottawa or the provinces – can support industry’s market diversification efforts through facilitating relationships (which is especially important in Asia), compiling market information that is lacking and negotiating trade deals to lower barriers for Canadian exporters. For example, B.C.’s 2016 budget provides $5 million over three years to FII to help promote Canadian wood in India. Demand in India is mostly for interior and finishing wood products, and its young, growing middle class indicates future growth.
The imposition of U.S. duties on Canadian softwood ends the brief period of free trade in lumber we’ve enjoyed since the expiration of the last softwood lumber agreement in October 2015. Understandably, trade action makes us much more keen to develop a more diversified customer base. The problem is that historically as soon as the dispute is resolved – usually through a time-limited managed trade deal – we are only too willing to run back into the willing arms of the U.S. market.
Let’s hope that this time around, we maintain the push for diversification. In the long run, the only way to avoid or lessen the impacts of U.S. tariffs on Canadian lumber is to have a diversified customer base.
– Naomi Christensen is senior policy analyst at the Canada West Foundation and author of Branching Out: Preparing for life without a Softwood Lumber Agreement.