Bridges Weekly Trade News Digest • Volume 16 • Number 3 • 25th January 2012

US, Canada Clinch Two-Year Extension of Softwood Lumber Deal

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Washington and Ottawa have signed an extension of their landmark softwood lumber agreement, just days after US President Barack Obama announced his rejection of a plan to build a pipeline that would have carried crude oil from Canada’s oil sands down to the US state of Texas.

The lumber pact, which was set to end in 2013, will now remain in effect for two additional years until October 2015, according to statements from both governments made earlier this week. The extension included no modifications to the agreement, which was originally signed in 2006 (see Bridges Weekly, 12 July 2006).

Softwood lumber is one of Canada’s largest exports to the United States; in the first 11 months of 2011, Canada exported US$2.6 billion of softwood lumber to the US, according to Canadian trade ministry data.

Some observers had speculated that Obama’s rejection of the Keystone project could have damaging effects on trade relations between Washington and Ottawa. However, Canadian Minister for International Trade Ed Fast, who signed the two-year SLA extension, rebuffed these concerns, insisting that the trade relationship between the North American neighbours remains strong.

“Obama’s action on the Canada-US pipeline hasn’t soured relations,” he told reporters in Washington on Monday, adding that TransCanada - the company behind the pipeline - will be allowed to file a revised route for the Keystone XL project that avoids an environmentally sensitive area in the US state of Nebraska.

“This extension agreement will bring much-needed stability and predictability to the lumber industry,” he added.

Controversy

Disagreements between the two countries on the lumber issue date back well over two decades, with legal battles having taken place both within the WTO and the North American Free Trade Agreement (NAFTA) dispute settlement systems.

The heart of the disagreement lies in Washington’s claim that the Canadian lumber industry was the recipient of unfair government support: the prices Canada charged to harvest the timber on state-owned land, called ‘stumpage fees’, were believed by the US to be so low that they constituted a subsidy. In response, Washington began levying retaliatory tariffs on Canadian lumber imports in 2002

Under the 2006 agreement, the United States agreed to cease imposing antidumping and countervailing duties on softwood lumber from Canada. In exchange, Ottawa agreed to apply export measures, the majority of which are export changes and volume limitations, to shipments of softwood lumber from Canada to the United States when the price of softwood products falls below a certain market level.

Under the original seven-year deal, the US has returned approximately US $4.5 billion, or roughly 80 percent of the levies collected, to Canada.

US lumber industry expresses concerns

The extension of the accord was heralded by both governments as a victory. United States Trade Representative (USTR) Ron Kirk underscored the importance of this extension after the announcement made on Monday.

“The 2006 US-Canada Softwood Lumber Agreement has provided a predictable and fair environment for conducting international trade for both producers and consumers,” he said. “The Administration’s record on softwood lumber demonstrates our steadfast commitment to ensuring fair trade that benefits American businesses and workers.”

While lumber industry representatives welcomed the announcement, they also cautioned that fundamental disagreements still remain about trade practices in the disputed sector.

The US Lumber Coalition warned that it will continue to keep a close eye on Canada, citing concerns regarding Canada’s compliance record under the agreement.

Since the 2006 signing of the deal, the US has taken Canada to the London Court of International Arbitration twice on cases regarding lumber exports, winning both times; a third dispute is currently ongoing, and is expected to conclude this autumn.

“If the US industry continues to find itself having to seek multiple arbitrations to address Canada’s unwillingness to adhere to its commitments, then the US industry has to seriously consider whether it would not be better off exercising its rights under US trade laws,” US Lumber Coalition Chairman Steve Swanson said.

ICTSD reporting: “Softwood Lumber Agreement with U.S. Extended,” CBC NEWS BRITISH COLUMBIA, 23 January 2012; “Canada-U.S. Softwood Lumber Agreement Extended Until 2015,” BLOOMBERG, 23 January 2012; “U.S. Canada Extend Multibillion-Dollar Softwood Lumber Agreement,” CANADA.COM, 23 January 2012; “US, Canada Extend Lumber Trade Agreement,” THE HILL, 23 January 2012.