The ongoing Softwood Lumber dispute between Canada and the United States continues to be a trade irritant. While attention and resources have been focused on securing and implementing a renewed NAFTA, the recently signed Canada-United States-Mexico Agreement (CUSMA) – along with the removal of tariffs on Canadian steel and aluminum – allows for an opportunity to re-focus on the urgent need for a softwood lumber agreement that is having a growing impact on Canadian forest companies.

Background

The forest industry is one of Canada’s largest export sectors. With over $38 billion in exports in 2018[1]  to many global locations, including approximately $20 billion to the U.S. alone, forestry supports the direct employment of between 186,00 to 232,000 employees in over 600 communities across the country.[2] 

The British Columbia forest sector provides well-paying jobs for 50,000 British Columbians, many of them in rural communities, and contributes $1.4 billion in taxes for important services across the province. As an integrated sector, it is made up of many interconnected and interdependent sub-sectors so it can make the most efficient use of all the fibre harvested.

One of these is the value-added or secondary wood manufacturing sub-sector. The value-added sub-sector includes innovative and entrepreneurial companies across the province and is an important element of B.C.’s diverse forest sector. In 2012, it provided close to 12,500 full-time jobs with estimated sales of $2.8 billion.

In 2012, a Canadian Forest Service survey found that the value-added sub-sector was dramatically impacted by global economic downturn and its ongoing effects on the U.S. housing market. It reported that in 2012, B.C. had 589 value-added businesses, with 12,417 full-time employees and an estimated $2.8 billion in annual sales. Employment was down 16% from 2006, and sales were down 11%. In 2012, companies with fewer than 50 employees made up 58% of the sub-sector; in 2006 they made up 88%.[3]

Back in 2002, the U.S. imposed countervailing (CVD) and anti-dumping (AD) tariffs on imported Canadian softwood lumber based on a belief that the Canadian, in particular BC’s, forestry industry received illegal government subsidies.

Between 2002 up to the previous Softwood Lumber Agreement (SLA) in 2006, the U.S. collected duties of over $4 billion dollars. The 2006 SLA eventually saw 81 percent of the $4 billion in AD/CVD refunded to the Importers’ of Record, with the remaining 19 percent retained by the U.S. Department of Commerce.

In November 2017, a year after the 1-year freeze from the end of the 2006 SLA, the U.S. Department of Commerce made its final determinations on AD/CVD cases against Canadian forest companies. This resulted in the U.S. International Trade Commission (ITC) making their final injury determination – which was published in federal registry by the Commerce Department in January 2018 – laying out the AD/CVD rates as follows:[4]

Company             CVD       AD

Canfor            13.24%       7.28%

Irving                 3.34%       6.04%

Resolute         14.70%      3.20%

Tolko                14.85%     7.22%

West Fraser    17.99%     5.57%

All others        14.19%      6.04%

The current AD/CVD has already impacted approximately $5.66 billion worth of softwood lumber exports to the U.S.[5]  These duties are starting to impact the success of Canadian forest companies. Many forest companies are starting to feel the effects of these tariffs that are compounded by weak fibre supply, . This is starting to result in shift reductions and even mill closures.

While Canada has been successful at appealing these allegations at the World Trade Organization (WTO) and through the North American Free Trade Agreement in the past, a recent WTO panel report partially sided with the United States’ position on softwood lumber. At the same time, NAFTA Chapter 19 challenges, initiated by the federal government, are slow to proceed. Of the three challenges to the ITC injury case, the anti-dumping case and the countervailing investigation filed back in November 2017, only the ITC case had a panel hearing.[6] 

Given the intensely political nature of this softwood lumber dispute, and strong lobbying efforts by U.S. businesses, is imperative that the federal government secure a renewed SLA with the U.S.

The Chamber Recommends

That the Federal Government, working with the Provincial Government:

  • Support the Canadian forest industry as required by:
    • Offering loan guarantees that are WTO compliant to help industry maintain credit and to borrow against cash deposits, so that the industry is not crippled by tariffs;
    • Expedite any further WTO and USMCA appeals as needed, and;
  • Leverage favourable NAFTA/CUSMA rulings by pushing for a new Softwood Lumber Agreement with the United States that returns AD/CVD to Canadian softwood lumber exporters and contains no other long-term ill effects for the industry or degrades current tariff-free treatment for any region in Canada.
Download the PDF

[1] Forest Products Association of Canada. 2015. Industry By the Numbers. http://www.fpac.ca/canadian-forestry-industry/forest-products/.

[2] https://cfs.nrcan.gc.ca/statsprofile/employment/ca.

[3] Secondary Manufacturing of Solid Wood Products in British Columbia 2012: Structure, Economic Contribution, and Challenges since 1990. Bogdanski, Bryan E.S. and Alec McBeath, Canadian Forest Service. 2015. http://cfs.nrcan.gc.ca/pubwarehouse/pdfs/35951.pdf

[4] https://www2.gov.bc.ca/gov/content/industry/forestry/competitive-forest-industry/softwood-lumber-trade-with-the-u-s.

[5] https://globalnews.ca/news/5167857/canada-wto-ruling-softwood-lumber/

[6] https://www2.gov.bc.ca/gov/content/industry/forestry/competitive-forest-industry/softwood-lumber-trade-with-the-u-s.