The Softwood Lumber Dispute

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Why the Ivy League is Surpisingly Affordable

The Softwood Lumber Dispute

What is the Softwood Lumber Dispute?
By Mike Moffatt

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The softwood lumber dispute is actually a number of disputes which have gone on for over 20 years between the United States and Canada. The heart of the softwood lumber dispute is the claim of the United States that Canada is unfairly subsidizing Canadian lumber production. The Canadians insist that they are doing no such thing.

The Softwood Lumber Dispute - Private vs. Public Ownership

In the United States, the majority of the softwood lumber harvested is from privately owned land. This is not the case in Canada, where most of the lumber harvested comes from Crown land. That is land owned by the federal or a provincial government. The way Canadian governments and American ones set the price they charge corporations to harvest this land is quite different and is the basis for the softwood lumber dispute. In the United States, logging rights are sold by using a competitive auction. In Canada stumpage fees are set by the government. These stumpage fees, which are based on a number of factors such as labor and transportation costs, tend to be significantly lower than the prices which come out of the U.S. auctions. The American government claims that these low prices constitute a subsidy to Canadian producers. The softwood lumber dispute stems from these prices and the actions the American government has taken in response.

An article like this cannot do full justice to the complete history of the softwood lumber dispute. A good summary of the history of the dispute is given by the American Consumers for Affordable Homes lobby group which is against softwood lumber tariffs. The important points of history are as follows:

  • After a few months of deliberation, in October 1986 the U.S. Department of Commerce (DOC) determined that Canada was subsidizing lumber production through low stumpage fees. Rather than engaging in a lengthy dispute, the American and Canadian governments agreed to a "Memorandum of Understanding" that called for a 15% ad valorem tariff on Canadian softwood lumber.

  • Canada terminated this Memorandum of Understanding on October 4, 1991 as they felt their new policies no longer constituted a subsidy to the Canadian softwood lumber industry. The DOC disagreed placing a 6.51% ad valorem tax on imported Canadian softwood lumber. Canada appealed under the U.S.-Canada Free Trade Agreement dispute settlement panel. The panel sided with Canada. The DOC then determined that Canadian softwood lumber was no longer being subsidized. The Americans would appeal the FTA decision but would ultimately be unsuccessful.

  • On May 29, 1996 the Canadian and American government signed the "U.S.-Canada Softwood Lumber Agreement" which would last from April 1996 to March 2001. The agreement required Canada to collect an export tax once lumber exports exceeded a threshold of 14.7 million board feet. Although the Canadians insisted that their softwood lumber was not being subsidized, they felt this export tax was worthwhile for the certainty it brought the industry.

  • As soon as this agreement expired on April 1, 2003, the U.S. Department of Commerce imposed another investigation of Canadian softwood lumber practices. It would be the fourth such investigation launched by the DOC in 20 years.

  • After the DOC investigation ended in August 2001 the DOC imposed a duty of 19.31 percent on Canadian softwood lumber imports. The Bush Administration would later impose an additional duty of 12.57 percent that it called an "anti-dumping duty". The Canadian government appealed these duties to the World Trade Organization (WTO) which ruled in Canada's favor on May 27, 2003. However this ruling is non-binding so the American government was not forced to change any policies. The American government still has an opportunity to appeal this ruling. The case is being examined by the NAFTA dispute resolution body which can issue a ruling that is binding.

The Softwood Lumber Dispute - Where Does America and Canada Go From Here?

Although most experts believe that the NAFTA body will find in favor of Canada, both sides are interested in reaching an agreement. The American government wants the Canadian government to agree to a tax on Canadian softwood lumber until the Canadians institute a system of competitive bidding as the Americans have. The Canadian government has shown lukewarm interest in changing how it and the provincial governments sell logging rights to producers. It instead has proposed a system similar to the agreement in 1996 where most softwood would enter the United States tariff-free, but imports over a certain level would be taxed at progressively higher rates. Although both sides are talking, it does not look like the softwood lumber dispute will ever be permanently resolved.

(The case was not fully resolved until 2009, when the London Court of International Arbitration ruled Canada was partially in violation…Mr. B)

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