CLICK to download a pdf of this article

The Canadian Softwood Lumber Agreement: What’s Up with That?

By Jack Petree

Living in Bellingham, Wash., between the 1970s and the early years of this century, it was impossible to drive the I-5 corridor through town for even a short way without passing, or being passed by, trucks loaded with softwood lumber heading south from British Columbia, Canada, toward destinations throughout the American West.

More disconcerting were my visits to pallet plants in the early years of the ‘80s. The reason was pallet manufacturers were finding Canadian lumber inexpensive enough to justify ordering a truckload and shipping it to Reno, San Diego, or other southwest destinations. Even with the shipping costs, Canadian lumber typically cost less than locally milled fiber.

As a vigorous proponent of free enterprise, I’d have had no problem with all that lumber heading south save for the fact that it seemed clear at the time that the lumber heading south was really not all that inexpensive; significant subsidies ultimately paid for by Canadian taxpayers were, in effect, pre-purchasing some of the lumber for the ultimate customer in the States. In the process, the softwood processing industry in the United States was being hit hard by the lost sales those subsidies created.

Of course, the Canadian lumber industry and its various proponents had an entirely different opinion about the issue of subsidies and other government sponsored benefits and their purported impact on the U.S. industry.

One thing was certain in those years; the courts and other decision-making bodies had plenty of work, and attorneys happily piled up the billable hours.

War and Peace?

A long, acrimonious, and often bruising battle between Canadian lumber interests, a coalition of U.S. lumber producers (the U.S. Lumber Coalition), and the governments of the two nations stained the ‘80s and ‘90s as a result of the perceived subsidies and their purported impact on the U.S. softwood lumber industry. Agreements were made but not renewed, appeals to international trade tribunals were launched, presidents and prime ministers weighed in on the issues, Canadian lumber exports were hit with tariffs and other financial penalties, and an overall atmosphere of on-going chaos in the lumber markets of the two nations seemed destined to continue.

In 1996 it seemed as though peace may have finally been declared with the signing of a U.S./Canada Softwood Lumber Agreement (SLA) that took effect in ’96 and ran for five years. The agreement was not renewed when it expired in 2001, and the courts, tribunals, and other trade enforcement entities found themselves busy once again.

The ensuing five years were marked by almost yearly charges and countercharges between the industries and governments of Canada and the United States. Government to government negotiations continued and finally resulted in a second U.S./Canada Softwood Lumber Agreement, a seven-year agreement that took effect in October of 2006 with provisions for a two-year extension.

2015 – Can’t We All Just Get Along?

Today, nine years later, the SLA is set to expire mid-October.

So what happens now?

First, there are no provisions for another extension of the agreement, which means negotiations must take place that will result in a new SLA.

The Canadian forest products industry appears to be interested in simply renewing the agreement. James Gorman, president of Canada’s Council of Forest Industries, has been quoted in the Canadian press as saying, “We’re of the view the agreement should be renewed in its entirety under all of its existing terms.”

The U.S. industry has quite a different outlook on the negotiations. Zoltan van Heyningen, speaking for the U.S. Lumber Coalition, agrees the Canadians would like to simply negotiate an extension of the agreement, but he comments, “Our analysis does not support a simple extension of the current agreement. Too many variables have shifted since the implementation of the current agreement.”

The two governments actually responsible for the negotiations are tight lipped, meaning that probably nothing of significance is happening.

If an agreement is not reached by October, a one-year standstill period has been agreed to; in essence a one-year extension.

Hurry Up and Wait

My bet regarding the negotiations?

Nothing much will happen in 2015. Negotiations will heat up in 2016 with progress being announced near mid-year; progress justifying another year of “standstill” while a new administration is elected. In 2017 something is likely to be brought forward for consideration with adoption late in 2017 or early 2018.

Industry firms hoping to meaningfully plan for the future based on likely market conditions over the next two or three years should consider planning based on the landscape in place today. Canada seems adamant that something close to the existing agreement should be re-adopted as SLA III while the U.S. industry continues to believe the current agreement is fundamentally flawed. In an election year, early agreement is unlikely.

Jack Petree is a writer, advertising consultant, and President of Tradeworld Communications.

January/February 2015

The Canadian Softwood Lumber Agreement: What’s Up with That?