Canada’s lumber producers should be a happy lot. The U.S. housing market is coming back, exports are rising and the Canadian dollar is cheap.
But the industry has a wary eye on its own version of the doomsday clock – the countdown to the Oct. 12 expiry of a long truce in the Canada-U.S. lumber wars. A date that seemed far off when the deal was struck in 2006 is now just a couple of seasons away.
Under the deal, Canada is required to put an escalating tax on exports as softwood lumber prices drop below a predetermined threshold. It’s a form of managed trade, designed to control access to the U.S. market and limit potential harm to producers there.
You might expect that Canadian lumber producers would be anxious to escape those shackles.
They’re not. Citing the will of the industry, Ottawa is already pushing hard to renew the agreement. It is a powerful reminder that true free trade between the two countries does not exist, and may never.
“There is general agreement in Canada in the value of maintaining this predictability and stability which has resulted from the softwood lumber agreement,” explained Rudy Husny, a spokesman for Trade Minister Ed Fast. “We have shared with the U.S. government our preference for a renewal of the agreement.”
So far, there has been no official U.S. response.
But the U.S. lumber lobby has made noises in recent months that it wants changes, rather than a straight renewal. U.S. producers have long argued that Canadian provinces heavily subsidize producers with cut-rate timber and other benefits – claims vehemently disputed in Canada.
Perhaps most irksome to the U.S. industry is that Canadian lumber has entered the United States duty free for much of the past two years, although a recent price drop has triggered a 5-per-cent duty.
The Canadian industry worries that without managed trade they’ll face a renewed campaign by litigious and deep-pocketed U.S. producers to get Washington to impose permanent duties. Even fighting and winning another trade case would be costly. And if the past is any guide, it’s a fight Canada would likely lose. (Under the agreement, the United States agreed not to launch another trade case against Canada for at least a year.)
Another negotiated deal is probably the best outcome of a no-win situation, acknowledged Toronto trade lawyer Lawrence Herman. “I don’t think there is any other choice,” he said.
It’s a long way from free trade. Renewal would limit the industry’s upside as U.S. housing starts rebound, and limit Canadians’ control of their own forests. Lumber is a black mark on the North American free-trade agreement – a category of trade that was meant to be free, but clearly isn’t.
The housing recovery may explain why most of the Canadian industry is so anxious to prolong the truce. U.S. starts are now running at more than one million per year, double the level in 2009. But there is much more room to grow. As recently of 2006, builders were breaking ground on more than 2.2-million homes a year.
Producers are already reaping the benefits. Canada exported $8.4-billion worth of softwood lumber last year, the industry’s best year since 2006.
But a lot has changed since 2006. The United States is no longer the only market for Canadian lumber. Asia, and particularly China, has become a much more important destination. In 2006, roughly 80 per cent of Canadian exports went to the U.S.; in 2014, only 50 per cent went to the U.S.
The industry is also far more integrated, blurring the lines between Canadian and U.S. producers. Most major Canadian lumber companies now own sawmills in the United States. Nearly 40 per cent of West Fraser Timber Co. Ltd.’s capacity is now in the U.S. Canfor Corp. has 12 per cent of its capacity in the U.S. and is continuing to ramp up output there.
Just because the industry wants the deal renewed does not mean it’s in Canada’s best interests.
The perpetuation of an artificial trade wall between the countries will tilt the balance of future jobs, production and economic benefits to the United States.
And that’s neither fair, nor free.Report Typo/Error