The Need for a Renewed Softwood Lumber Agreement

Year: 
2016

The forest industry is one of B.C.’s largest sectors that export into the United States and around the world. In 2013, B.C. forest industry revenue was $15.7 billion. Of this revenue, approximately 62 percent was generated in the interior region and 38 percent from the coast region making this an extremely important component of the B.C. economy. Indeed, many B.C. communities rely heavily on the forest industry. The economic impact of the forest industry is also felt throughout B.C. where more than 145,000 people are employed in the forest sector.

Back in 2002, the U.S. imposed countervailing (CVD) and anti-dumping (ADD) duties on imported Canadian softwood lumber based on a belief that Canadian, in particular B.C.’s, forestry industry received illegal government subsidies.

Between 2002 and the initial Softwood Lumber Agreement in 2006, the U.S. collected duties of over $4 billion dollars. The SLA of 2006 saw eighty-one percent of the $5 billion in ADD/CVD tariffs refunded to the Importers’ of Record, with nineteen percent withheld from Canadian Importers of Record by the U.S. government.

Canada has successfully appealed these allegations at the World Trade Organization and through the North American Free Trade Agreement, but greater certainty was and is needed.

The 2006 Softwood Lumber Agreement, which was extended in 2012, provided immediate relief on countervailing tariffs and returned 80 percent of the $5 billion to B.C. and other Canadian lumber producers. Though the SLA allowed for an export tax based on the market price per million board feet (mbf), the recently expired SLA allowed did provide that greater certainty for the B.C. lumber producers.

B.C. forest companies knew the cost of doing business in the U.S. ranged from a 15% tax when prices were below US$315 per mbf to no tax at prices over US$355 per mbf,

Over the next 4 years, forest prices are expecting to climb from the current price of around US$315 per mbf to a high of close to US$500 per mbf. Based on the recently expired SLA, B.C. forest companies could expect to pay no export tax as of January 2018 if current projections hold steady.

As of right now, the export tax has expired with the agreement and there is a one-year freeze on any new countervailing and anti-dumping duties being applied. Effectively, the status quo between Canada and U.S. is in place with respect to softwood lumber until the 1-year freeze is lifted.

Given the political nature, and the strong lobbyist efforts in past, it is unlikely that the U.S. Department of Commerce won’t reinstate duties. For that reason, it is imperative that the federal government continue negotiations with the U.S. government to achieve a similar agreement as to the 2006 SLA.

THE CHAMBER RECOMMENDS:

That the Federal Government negotiates and ratify a new Softwood Lumber Agreement with the United States using the recently expired agreement as the guideline to the final agreement.

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