Inside the never-ending softwood lumber trade war between Canada and the U.S.

Open this photo in gallery:

Canadian lumber companies have gained a foothold in the United States during a trade battle that has defied repeated attempts at a long-lasting resolution.

Canadian-owned sawmills south of the border now account for 22 per cent of lumber capacity across the U.S., according to data crunched by Forest Economic Advisors, a consulting firm, for The Globe and Mail.

The softwood lumber fight, which dates back to the early 1980s, is complicated by divergent views on public versus private ownership of forests. But the lines have blurred because of inroads by Canadian producers, especially with their invasion over the past decade into fast-growing lumber markets in the U.S. South.

Canadian-based companies now control 35 per cent of sawmill capacity for softwood in the U.S. South, based on data compiled by Forest Economic Advisors.

Welcome to the complex, arcane and strange world of the softwood industry, where major Canadian producers have taken a detour around U.S. tariff barriers. The geographical diversification strategy means Canadian companies are gaining greater access to timber in the U.S. amid supply constraints for wood fibre in Canada, especially in British Columbia.

The Canadian crusade in the U.S. – snapping up sawmills and building new ones – has emerged as a surprising trend in the trade war. It stands in sharp contrast to 2006, when Canadian-owned sawmills in the U.S. barely registered on the forestry map.

The 2006 softwood lumber agreement expired in 2015, with no replacement. In the latest round of the long-running trade fight, the U.S. Department of Commerce started imposing tariffs in 2017 on shipments of Canadian lumber.

Last week, the chief executive officers of Canada’s top lumber producers met with International Trade Minister Mary Ng for an online discussion on the cross-border dispute. The CEOs want the Canadian government to place the softwood file onto the agenda for the March 23-24 summit in Ottawa between Prime Minister Justin Trudeau and U.S. President Joe Biden.

History shows that Canada enjoyed a short-lived victory 40 years ago. In March, 1983, the U.S. International Trade Administration (ITA) determined that provinces provided only minimal subsidies to Canadian softwood producers and no tariffs were imposed. But by 1986, the ITA ruled that there were significant subsidies, triggering the first in a series of tariff barriers.

Powerful lobbyists, led by the U.S. Lumber Coalition, have been able to persuade the Biden administration so far to avoid softwood negotiations with Canada, said David MacNaughton, Canada’s former ambassador to the U.S. “In Congress, they will say it’s all about protecting rural jobs,” he said.

He recalls then-president Barack Obama holding a state dinner in 2016 at the White House for Mr. Trudeau, and spirits were high. “It was bromance, lovey dovey and everything was going to be great,” Mr. MacNaughton said. “I thought we were going to get a lot of things resolved, including softwood lumber.”

Seven years after that dinner in Washington, Mr. MacNaughton finds himself in a position to potentially complete some unfinished business. The Canadian lumber CEOs wrote a March 10 letter to Ms. Ng, asking her to appoint Mr. MacNaughton as Canada’s special envoy to mediate a truce in the trade fight. Global Affairs Canada will only say that Ottawa is willing to explore all avenues to resolve the softwood dispute.

The wild card is whether Ms. Ng’s counterpart, U.S. Trade Representative Katherine Tai, will view the softwood file as a priority.

“It has become much more of a continental industry. In a lot of respects, the softwood dispute is fighting old battles,” said Duncan Davies, former CEO at Burnaby, B.C.-based Interfor Corp.

The softwood war is more of a political dispute between the two countries than a legitimate trade battle, said David Emerson, who served as Canada’s international trade minister when the two countries signed a nine-year truce in 2006.

The U.S. and Canada have different systems for charging producers to chop down trees.

In much of Canada, the forests are on Crown land, with buyers paying “stumpage fees” to provincial governments for the right to log. The U.S. government believes it has a better system for soliciting competitive bids for logging rights in forests that are controlled mostly by private owners of timberland.

The American industry remains suspicious that the bulk of Canadian timberland ownership is in the public hands of provincial governments.

Canadian sawmills, which are owned mostly by producers with Canadian headquarters, are portrayed in the U.S. as having unfair advantages arising from provincial forestry policies that allegedly support job creation and promote social welfare. The U.S. believes in its mostly privatized forests. But full-fledged privatization, whether in public health care or Crown ownership of forests, would be politically toxic in Canada, Mr. Emerson said.

“We need the U.S. industry and the U.S. government to get to the table and negotiate a durable solution to this decades-long dispute,” said Linda Coady, president of the BC Lumber Trade Council.

U.S. authorities maintain that the stumpage fees Canadian companies pay to provincial governments to cut trees on Crown land are too low, which amounts to subsidies.

For Canadian producers, it has often felt like fighting a losing battle against the U.S. lumber industry, even though international trade panels have repeatedly ruled in favour of Canada as a fair trading partner.

“Just because Canada is different, it doesn’t mean it trades unfairly,” said Remi Lalonde, CEO at Montreal-based Resolute Forest Products Inc.

The U.S. lumber lobby has sway over Congress, though that political grip has loosened over the past couple of years.

The upshot is that the U.S. Lumber Coalition still has the backing of many influential U.S. senators and members of the House of Representatives. The U.S. National Association of Home Builders, however, mounted a campaign to draw attention to record-high lumber prices in 2021 in a bid to shift political sentiment.

Forest Economic Advisors estimates that U.S. sawmills as a whole – including those owned by Canadian companies – accounted for 68 per cent of U.S. domestic consumption of lumber last year.

Amid Canadian timber constraints, sawmills located in Canada have seen their share of U.S. lumber consumption steadily eroded, falling to 26 per cent last year, compared with nearly 33 per cent in 2016.

Conservative trade critic Kyle Seeback said it’s disconcerting that the U.S. market share held by Canada’s foreign competitors has crept up, primarily lumber shipped by European producers, which do not pay U.S. lumber duties.

Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, said U.S.-owned lumber producers and timberland owners have faced unfair competition from sawmills in Canada for decades. “Continued enforcement of U.S. trade laws will strengthen domestic supply chains and availability of lumber produced by U.S. workers to build U.S. homes,” he said.

But Susan Yurkovich, senior vice-president of global business development at Canfor Corp., said U.S. tariffs unduly inflate lumber prices and defy logic. “It’s straight protectionism,” she said.

U.S. trade laws look primarily at alleged injury to U.S. lumber producers, and don’t really factor in U.S. consumers from a legal perspective in trade litigation.

Canfor recently started operations at its new DeRidder sawmill in Louisiana, marking the company’s 13th sawmill in the U.S.

Vancouver-based Canfor also plans to construct a new facility in southern Alabama, replacing the existing operation in Mobile. Other producers with Canadian head offices that have U.S. operations include Interfor, West Fraser Timber Co. Ltd., Resolute Forest Products Inc., Tolko Industries Ltd., J.D. Irving Ltd., Western Forest Products Inc. and Teal-Jones Group.

“U.S. producers have been using their trade laws opportunistically to basically make it more expensive for U.S. consumers to buy lumber,” said Ms. Yurkovich, former president of the BC Lumber Trade Council and former CEO at the BC Council of Forest Industries.

Even if there is a breakthrough at the Ottawa summit for a framework for softwood talks, any signed agreement would be months away. “Taking maybe like five or six months would be realistic because there are so many players involved,” said Daowei Zhang, a professor of forestry economics at Auburn University in Alabama.

Canada’s softwood producers say they have paid more than $8-billion in lumber duties to the U.S. from 2017 to 2022.

Countervailing duties are levied in retaliation for alleged subsidies while anti-dumping duties are imposed for what the U.S. Department of Commerce views as lumber being sold below market value.

“The longevity of this lumber dispute defies gravity,” said Prof. Zhang, who wrote a 2007 book titled The Softwood Lumber War.

Lumber prices have fallen more than 75 per cent after peaking nearly two years ago, when a renovation craze helped drive up demand for wood products in the midst of the COVID-19 pandemic.

In the B.C. Interior, sawmills have been operating at below break-even levels since the fall of 2022, while most of the lower-cost plants in the U.S. are still profitable.

It takes 70 to 100 years before spruce, pine and fir trees are considered ripe for harvesting in the B.C. Interior. In the milder climate of the U.S. South, the growing season is much faster, taking about 35 years before southern yellow pine trees are harvested.

The conditions of faster-growing trees, relatively plentiful timber supplies and lower operating costs in the U.S. South have been magnets for Canadian-based companies.

Interfor made its first foray into the U.S. South in 2013, when it bought three sawmills in Georgia. Its other moves include acquiring an Arkansas plant in 2015 that would be later modernized in 2018. In 2021, Interfor acquired a total of four U.S. sawmills – in Mississippi, Alabama and Louisiana in the U.S. South, and in Oregon in the Pacific Northwest.

At the Stine lumber store in the community of Lake Charles in Louisiana recently, the selection of boards on the shelves included those labelled “IF09″ – which identifies the product as originating from Interfor’s Arkansas sawmill.

Lumber stocked at U.S. retail stores or used by U.S. home builders could be from Canada or “made in the USA,” which could mean product from a Canadian-owned sawmill in the U.S., employing American workers.

“This softwood dispute is an artifact from the past that is illogical and out of date with modern times,” said Ric Slaco, Interfor’s former chief forester.