Based on the past several Canada-U.S. lumber trade wars going back to 1982, there are two safe bets to make today, at the outset of the next round of hostilities.
One is that it’s going to take years to reach a definitive conclusion, during which an incalculable amount of money will be spent on legal fees.
The other is that Canada will lose. Even when Canada wins, which it has done numerous times in multiple venues, it still loses.
The only scenario that represents a clear Canadian win is free trade with the U.S., with Canadian lumber crossing the border duty-free. Canada has made the case multiple times that’s fair and reasonable. It has won more of those arguments than it has lost.
But after each win, Canadian negotiators have reached the bitter conclusion that a compromise is necessary. So three of the last four major showdowns have resulted in “managed trade agreements.” That means Canada surrenders some of the spoils of victory and gives part of the win back to the U.S.
Pursuing a clear win means going up against a powerful adversary that is spurred on by a relentless lobby group that is convinced Canadians subsidize mills by providing them timber below market value.
The Canadian side has agreed over the years to a series of complicated arrangements where either the U.S. penalizes softwood lumber imports, or provinces impose their own levies on southbound lumber. After each round, as one expert put it, provinces and companies “have to agree on how they’re going to be skewered this time.”
The official line is that the disputes are incredibly costly and harm the international relationship.
“Managed trade agreements are preferred to trade disputes due to increased stability and certainty … on both sides of the border,” is the official B.C. explanation. That’s the operative national position as well. So Canada is ceding any chances of a pure victory right from the start.
The last deal was reached in 2006 and it imposed various costs on Canadian softwood lumber, as well as repatriating about 80 per cent of the $5 billion in levies collected by the U.S. and held in trust during the years it was negotiated. (The U.S. retained the rest, and turned over much of it to the lobby group that started the fight, meaning Canada effectively funded legal bills on both sides.)
That deal lasted until recently, and the penalties on B.C. softwood, most of it from the Interior, were imposed monthly, triggered mostly when the benchmark price for lumber rose above a set point. Some months there was no duty, some months there was.
A few things are different this time around. One is the fact Donald Trump is president-elect. It’s impossible to compute what that could mean, given his mercurial record of instability. Anybody who predicts what a Trump administration will do on anything is faking it.
Another is the remarkable incursion that big Canadian-based lumber firms have made into the U.S. market. As the beetle kill eroded huge swaths of timber supply, the big companies started looking south to invest.
Canadian firms selling lumber to the U.S. face headaches. Canadian firms looking to simply buy U.S. mills outright do not. They got around the hurdles designed to protect U.S. mills by simply taking them over.
Outfits such as Canfor, Interfor and West Fraser now own a comparable number of mills in the U.S. as they do in B.C. None of them belong to the coalition that has fought Canadian lumber imports for decades. But they have holdings on both sides of the fence as the next round of petitions, determinations, suits and counter-suits begin. It’s hard to say how that will work out, but it’s another complicating factor.
Just So You Know: The use of “Canada” throughout implies there’s a unified national stand on softwood. But there isn’t. The Maritimes have a different regime than B.C., Ontario and Quebec have different priorities and beetle-ravaged B.C. has a unique position, and the most at stake. Just agreeing on a strategy, let alone a long-term game plan, is going to be a challenge.