By Jamie Barrie I f you asked the average Canadian on the street why softwood is import- ant most probably couldn’t tell you what it is, let alone it’s critical value to Canada’s economy. In contrast, ask someone working in the industry and they will educate you on the jobs softwood lumber creates and the positive impact it has on GDP. They’ll also likely explain that Canada has also had a long-standing trade dispute since 1982 with their biggest market the United States. It remains the most troublesome and enduring disagreement between the two nations. That is why no one was surprised that President Trump jumped into the issue head first with a vow to make sure the arrangement is fair. At the heart of the dispute is the level of government involvement in the industry. The US has always made a compelling case that because much of the lumber harvested in Canada comes off government lands, subsidies are being provided. The price harvesters pay per stumpage is not set by the market. It is an adminis- trative process determined by government. In the US, most of the land is privately held and therefore stumpage fees are tied to market prices. Canada claims that the softwood lumber industry provides over 250,000 direct and nearly 300,000 spinoff jobs to the economy. Therefore, Ottawa has worked hard to provide a different view of the industry north of the border. The Canadian position has been that because the government benefit to the sector is spread across so many dif- ferent industries tied to softwood lumber, it really isn’t a subsidy as defined by trade agreements. Their belief is a subsidy would have to be direct support of one or two products exported for sale which they argue is not the case with softwood lumber. Canada and the US have constantly been able to reach agreements to ensure lumber exported from Canada arrived in the US at prices high enough to comply with anti-dumping policies. These negotiations have always been hard fought, short-term deals that both parties agree are best for their own markets. The World Trade Organization has been brought into the dispute on numerous occasions and NAFTA pro- visions have been used to settle pricing difficulties. One thing is constant. Canada has more wood than it needs and the US is not able to meet their domestic demand for lumber. The last of these legendary agreements expired in October 2015. Both parties agreed to a one year moratorium on trade sanctions. During that year, Pres- ident Obama and Prime Minister Trudeau met to ensure their negotiators were working hard on renewing a long-term agreement. When the one year freeze ended in October 2016 Obama was no longer in the White House. By November rumors were leaking that Trump’s transition team had been told
to include softwood lumber in his mandate to re-negotiate bad trade deals of which he has identified NAFTA as enemy number one. The rumors became reality on April 24 th when the US President Trump announced, “we are going to put a 20% tariff on softwood lumber coming in, tariff on softwood coming into the United States from Canada.” The tariffs vary and go as high as 24% on imports from the major Canadian producers. Each firm has a different rate based on the level of govern- ment subsidy determined by the United States. West Fraser Mills was the highest because they use the most crown land while the lowest was JD Irving in Atlantic Canada at only 3% because the majority of wood- lands in those provinces are private- ly owned. The Canada government has fired back, calling the tariff an “unfair and punitive duty”, imposed on “baseless and unfounded” alle- gations, according to a joint state- ment from Foreign Minister Chrystia Freeland and Natural Resources Minister Jim Carr. The statement went on to suggest the move hurts workers on both sides of the border and will raise U.S. construction costs for new homes. Because of these proposed tariffs and other actions they Trump administration is looking to impose in the fight again NAFTA in order to make America Great Again have seen the loonie sink to a 4-month low against the U.S. dollar and its continuing descent.
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SPOTLIGHT ON BUSINESS MAGAZINE • MAY 2017
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