Canada: Where Does The Softwood Lumber Agreement Currently Stand?

The 2006 Softwood Lumber Agreement expired on October 12, 2015.  While that agreement mandated export measures on Canadian softwood lumber exports destined for the United States, it also protected those lumber exports from the potential imposition of onerous import measures by the U.S.  Currently, a 12-month post-termination stand-still period protects Canadian softwood lumber exports from U.S. import measures.  However, that residual protection will soon expire.

On August 18, 2016, Martin Moen, Canada's Chief Negotiator, provided an update report to the Standing Parliamentary Committee on International Trade.  According to his oral report, if a replacement agreement is not reached by October 12, 2016, there is a "high risk" that U.S. producers will petition the U.S. Department of Commerce for the imposition of high countervailing and antidumping duties.  As in the past, these attempts likely will be made on the grounds that Canadian provinces are subsidizing the industry by setting stumpage values that do not reflect market rates and that Canadian exporters are dumping softwood lumber in the U.S. at unfairly low prices.

In the past, the U.S. has responded to such petitions by imposing high import measures.  All such measures have been successfully challenged; however, bringing those legal challenges took many years and, in the interim, the U.S. imposed high duties had a significant impact on Canadian producers.

So while there is a real question as to whether any U.S. imposed duty would be legally justifiable, Chief Negotiator Moen reports that there is an almost unanimous agreement among the provinces and stakeholders that Canada's best course of action going forward is to attempt to negotiate a successor agreement.

Commentators note that, in the U.S., a resolution of the dispute is encumbered by a protectionist approach from producers that calls for a more restrictive agreement than the last, and by a lack of incentive to move quickly.  Chief Negotiator Moen noted that negotiations for this agreement are more complex than a usual trade agreement since the U.S. government requires a majority of the industry's support before it can enter into an agreement that would restrict those U.S. producers from seeking trade remedies available to them under U.S. law.

The U.S. Lumber Coalition, which writes on its website that its "overarching goal is to restore an environment in which it can invest, grow to its natural size, and better be able to supply the U.S. market which will help restore the thousands of jobs lost to unfair trade", is currently calling for U.S. producers to indicate their support for a potential future petition.  It writes that if no agreement is reached by October 13, 2016, it will "evaluate whether the time is right to file new petitions against imports of softwood lumber from Canada that are subsidized, dumped, or both".

At a joint press conference on March 10, 2015, both Prime Minister Trudeau and President Obama referred to the softwood lumber issue as an "irritant" that they aimed to resolve. They instructed International Trade Minister Chrystia Freeland and the U.S. Trade Representative Michael Froman to explore all options and report back within 100 days. However, after meeting again on June 29, 2016, Prime Minister Trudeau and President Obama released a joint statement reporting that, while progress has been made, "significant differences remain regarding the parameters of the key features".

What can we expect going forward?

Chief Negotiator Moen reports that there is currently a very high level of engagement between representatives of both governments.  He characterized discussions as constructive, but reported that the parties remain far apart on several key issues and that there are several gaps to be bridged.

Topics of discussion include establishing an appropriate structure of export charges and quotas; regional exclusion for Atlantic provinces and territories; provisions for company exclusions (for mills sourcing from the U.S. or private lands, for example); treatment of high value products; treatment of remanufacturers; the treatment of the anti-circumvention and transparency provisions in the agreement; and joint market development.  In the discussion that followed Chief Negotiator Moen's report, the issue also arose as to whether Quebec producers also should be exempt from any future agreement due to changes in that province's lumber pricing.

Chief Negotiator Moen was clear that the goal remains achieving agreement by the end of the standstill period. However, he stressed that "no deal is better than a bad deal" and that if agreement cannot be reached, Canada must be prepared to respond to a trade investigation and possibly litigation to follow.

More recently, Freeland has reported to the media that while the negotiating parties share goodwill, the highly protectionist climate in Washington means that it may not be possible to settle a replacement deal by the end of the standstill period.  She characterized the deal as "a notoriously, historically tough and complicated issue to resolve".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Daniel R. Bennett
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