This month, the United States International Trade Commission (ITC) may make a countervailing duty order adding additional fees to the cost of softwood lumber imported into the U.S. from Canada. A decision by the ITC is scheduled for mid-May.
On Nov. 25, 2016, the U.S. Lumber Coalition, which represents American softwood lumber producers, petitioned the U.S. Department of Commerce and ITC to restore what it considers to be the conditions of fair trade in softwood lumber between the U.S. and Canada.
At the heart of the dispute is the claim that Canadian provincial governments are unfairly subsidizing the softwood lumber industry, thereby causing harm to the U.S. producers. The U.S. Lumber Coalition wants duties imposed on Canadian imports to offset what it sees as the harm caused by those subsidies.
The Softwood Lumber Agreement (SLA) between the U.S. and Canada expired on Oct. 12, 2015, and was in effect from 2006 to 2015. There was a one-year cooling off period where neither country was allowed to engage in litigation on the issue. That cooling-off period expired on Oct. 12, 2016.
Under the agreement reached in 2006, a two-track approach was used to levy additional fees on softwood lumber imported into U.S. from Canada. For imports from British Columbia (which produces over half of all Canadian softwood lumber) and Alberta, an export tax applied based on a four-week moving average of the Random Lengths Framing Lumber Composite Price. For imports from the other provinces, an export tax and market share quota applied.
Political events in the U.S. and Canada have only made negotiating a new agreement more challenging. Expiration of the agreement occurred just prior to the Canadian federal election that saw Justin Trudeau elected as the new Prime Minister. That was followed by the U.S presidential election, which took place several weeks after the end of the one-year cooling off period.
Moreover, the issue of trade was prominent during last year’s presidential election and defied traditional political norms held by Republicans and Democrats. Donald Trump was able to resonate with voters, and ultimately win the election, in part by bashing U.S. trade deals as overly friendly to other countries. President Trump has continued his strong criticism of past U.S. trade policies, and has promised to renegotiate trade agreements so they are more favorable to American businesses and workers.
Efforts toward a new agreement have been further complicated by the slow pace in staffing federal agencies by the Trump Administration, including the Office of the U.S. Trade Representative that negotiates trade agreements. Reports suggest that Commerce Secretary Wilbur Ross will play a larger role in trade policy than is traditionally the case for someone in his position. President Trump’s economic advisers overall support a trade policy approach that is more protectionist than under President Obama.
Recently, some NLBMDA members have seen significant increases in Canadian softwood lumber prices. The Random Lengths Framing Lumber Composite price jumped from $366 per thousand board feet on Feb. 3 to $391 on Feb. 10, the greatest weekly gain since August 2003. The recent increase may be in anticipation of duties being levied soon on Canadian imports.
American and Canadian softwood lumber producers have nearly all of U.S. softwood lumber market. U.S. lumber producers have approximately 65% to 71% of the U.S. softwood lumber market, and Canadian producers’ market share fluctuates between 28% and 34%. There is relatively little softwood lumber imported into the U.S. from countries other than Canada, although there have been efforts from some groups to encourage imports from other countries.
NLBMDA supports the U.S. and Canada reaching a new softwood lumber agreement that helps meet domestic demand for softwood lumber, does not put U.S. lumber producers at a competitive disadvantage, unnecessarily restrict the availability of products, or increase the cost of housing to the detriment of prospective homebuyers and U.S. consumers.
In addition, the association has not taken a position regarding any export taxes or market quotas as part of a new agreement. NLBMDA continues to meet with government officials regarding the need for a new softwood lumber agreement to avoid a prolonged trade dispute.