The Softwood Lumber Dispute Between Canada and The United States
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Case Code: ECON022 Case Length: 14 Pages Period: 1983-2007 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.300 Organization : - Industry : Manufacturing (Forest Products) Countries : USA and Canada Themes: Trade Dispute |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The Government[s] of Canada and the United States made a huge investment in the Softwood Lumber Agreement to resolve more than 20 years of litigation."
- Susan Schwab, United States Trade Representative, in March 2007
"The NAFTA panel decision is gravely flawed and signifies a potential end to an important antidote in the U.S. lumber industry's efforts to counter the poison that is Canadian lumber industry practices."
- Steve Swanson, Chairman of the Coalition for Fair Lumber Imports, in March 2007
"When this incompetent government signed the softwood deal last fall, it promised seven years of peace and we have got barely seven months."
- Michael Ignatieff, Member of Canadian Parliament, in April 2007.
Introduction
In March 2007, the US Trade Representative, Susan Schwab (Schwab), said that she was keen on discussing the Canadian forestry programs, both federal and provincial, mentioned in the Softwood Lumber Agreement (SLA) of 2006, with David Emerson (Emerson), her Canadian counterpart. The SLA, which came into effect on October 12, 2006, reflected an attempt by Canada and the US to solve their lumber trade dispute which had dragged on for several decades. Softwood lumber had been one of Canada's largest exports to the US (Refer Exhibit I for US Imports of Softwood Lumber from Canada).
However, US lumber producers objected to Canada's trade practices, especially to the stumpage fees that the provincial governments collected from lumber companies, saying that they were so low that they amounted to subsidies. The first formal complaint from the US side was made as early as 1982, when the US Coalition for Fair Lumber Imports (CFLI) filed a petition with the US Department of Commerce (DOC). The petition claimed that the Canadian government's timber programs gave an unfair trade advantage to Canadian lumber producers, thus allowing them to export lumber to the US at prices that were much lower than that of US lumber. In 1983, the DOC did not find sufficient reason to regard low stumpage fees as subsidies; but in 1986, it agreed with US lumber associations' contention that low stumpage gave Canadian lumber producers an unfair trade advantage.
Consequently, the Canadian and US governments signed a Memorandum of Understanding (MoU) in 1986 and the SLA in 1996 in an effort to resolve the dispute. However, when the SLA expired, the US DOC initiated countervailing and antidumping duty determinations. In March 2002, the DOC determined that Canadian lumber was subsidized and in May 2002, the US imposed 27% duty on Canadian softwood lumber. Canadian producers, on the other hand, felt that they were unnecessarily targeted and labeled the US government's interventions as protectionist.
They felt that the US actions were against the spirit of the Free Trade Agreement (FTA) (Refer Exhibit II for a Brief Note on the Canada-US Free Trade Agreement) that the two countries had entered into in 1989. The Canadian government challenged US actions under NAFTA,8 at the World Trade Organization (WTO)9 and in the US federal courts. Even though Canada had taken the matter to NAFTA and the WTO, it was in favor of resolving the softwood lumber dispute bilaterally. After many rounds of discussion, Canada and the US signed a new SLA on September 12, 2006. Analysts were hopeful that this agreement would promote a stable trade environment for the softwood lumber industry of both countries. However, with newspaper reports in early 2007 suggesting that both sides were uncomfortable with certain clauses in the agreement, it seemed as though the dispute was going to linger on.
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