The Softwood Lumber Dispute Between Canada and the United States: Recent Developments

Reading Time: 6 minutes

Disponible en français.

Since 1982, when the United States first considered trade measures against Canadian softwood lumber products, there have been bilateral softwood lumber disputes “Softwood Lumber I” through “Softwood Lumber V,” as shown in Figure 1.

Figure 1 – Softwood Lumber Trade Disputes Between Canada and the United States
Since 1982

This figure is a timeline that shows, since 1982, the year in which each of the five softwood lumber trade disputes between Canada and the United started: “Softwood Lumber I” (1982); “Softwood Lumber II” (1986); “Softwood Lumber III” (1991); “Softwood Lumber IV” (2001); and “Softwood Lumber V” (2015).

Source: Figure prepared by the Library of Parliament.

For decades, the United States has applied anti-dumping duties (ADs) and countervailing duties (CVDs) on certain Canadian softwood lumber products, and Canada has taken actions at the World Trade Organization (WTO) and under both the North American Free Trade Agreement (NAFTA) and the Canada–United States–Mexico Agreement (CUSMA).

This HillNote briefly describes Softwood Lumber I through Softwood Lumber IV. It then examines Softwood Lumber V and outlines the Government of Canada’s actions to date. Because trade disputes are among the factors that can affect firms, workers and communities, the HillNote also highlights the Canadian forest sector’s contribution to gross domestic product (GDP) and exports, as well as to some of the country’s communities and employment levels.

Softwood Lumber I Through Softwood Lumber IV

In Softwood Lumber I, the U.S. Department of Commerce (DoC) denied a petition by U.S. softwood lumber producers requesting that CVDs be applied on certain Canadian softwood lumber products.

Softwood Lumber II was resolved in 1986, when a six-year memorandum of understanding (MOU) established a 15% provisional tax on all Canadian softwood lumber exports to the United States.

The MOU’s expiration led to Softwood Lumber III, which was settled in 1996 when a five-year agreement put a quota system in place for Canadian softwood lumber exports to the United States.

When the agreement terminated in 2001, another trade dispute occurred, with Softwood Lumber IV ending when the two countries concluded the Softwood Lumber Agreement (SLA).

The SLA came into force in October 2006 for an initial seven‑year period, with a possible two-year extension. The United States agreed not to apply ADs or CVDs on imports of certain Canadian softwood lumber products for the term of the agreement. U.S. authorities returned more than $5 billion in duty deposits to Canadian companies.

Softwood Lumber V

Softwood Lumber V began in October 2015, following the end of the two-year extension of the SLA.

In November 2016, a coalition of U.S. softwood lumber producers filed petitions with the DoC and the U.S. International Trade Commission (ITC), claiming that Canadian softwood lumber producers were being subsidized and were selling their products in the U.S. market below their market value.

The DoC began AD and CVD investigations into U.S. imports of certain Canadian softwood lumber products, with final affirmative determinations in both investigations issued in November 2017. Several weeks later, the ITC released its final determination that imports of these Canadian products materially injured U.S. softwood lumber producers.

In January 2018, the DoC published an AD order and a CVD order, with duties of 14.19% and 6.04%, respectively, applied on U.S. imports of certain Canadian softwood lumber products.

Pursuant to its first administrative review of these AD and CVD orders, in December 2020, the DoC applied ADs and CVDs of 1.57% and 7.42%, respectively.

On 23 November 2021, the DoC announced the final results of its second administrative review of these AD and CVD orders.

In its AD review, the DoC determined that 273 Canadian softwood lumber producers – including Canfor and West Fraser Mills – sold softwood lumber products in the United States at prices below “normal value.” In its CVD review, the DoC concluded that those two producers, as well as J.D. Irving Limited and Resolute Forest Products, received countervailable subsidies.

The DoC will instruct U.S. Customs and Border Protection to collect cash deposits from certain Canadian softwood lumber exporters at the rates indicated in Table 1.

Table 1 – Anti-dumping and Countervailing Dutya Rates Currently Applied by the U.S. Department of Commerce on the Products of Certain
Canadian Softwood Lumber Producersb

Firm Final Anti-dumping Duty Rate Final Countervailing Duty Rate Combined Final Duty Rate
Canfor 17.12% 2.42% 19.54%
Resolute Forest Products 11.59% (“all others”) 18.07% 29.66%
West Fraser Mills 6.06% 5.06% 11.12%
J.D. Irving Limited 11.59% (“all others”) 3.41% 15.0%
“All others” 11.59% 6.31% 17.9%

Notes: a. U.S. Customs and Border Protection collects duties on the softwood lumber products specified in the anti-dumping duties and countervailing duties orders.
b. Not all Canadian producers that are subject to an administrative review are individually examined by the U.S. Department of Commerce (DoC). Canadian producers that are individually examined must provide detailed information about their financial operations. At the conclusion of an administrative review, the DoC issues firm-specific duty rates in relation to the individually examined producers; the remaining producers receive an “all-others” rate that is the average of the rates for the individually examined producers.
Source: Table prepared by the Library of Parliament using data obtained from Global Affairs Canada, “Recent Developments,” Softwood Lumber.

The Government of Canada’s Response to Softwood Lumber V

During Softwood Lumber V, the Government of Canada has responded to the United States’ application of ADs and CVDs on certain Canadian softwood lumber products by taking action at the WTO and under both NAFTA and CUSMA.

In November 2017, Canada began WTO dispute-settlement proceedings.

Regarding the ADs, an April 2019 WTO panel report stated that the DoC’s use of “zeroing” when calculating margins in dumping investigations is consistent with the WTO’s rules. However, it concluded that the methodologies the United States used in calculating the ADs had “nullified or impaired benefits accruing to Canada under [the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994].”

Canada appealed the panel’s findings about the U.S. practice of “zeroing” and its use of the differential pricing methodology to the WTO’s Appellate Body.

Concerning the CVDs, an August 2020 WTO panel report indicated that the United States had violated the WTO’s Agreement on Subsidies and Countervailing Measures by improperly rejecting Canada’s use of benchmark prices for softwood lumber in various provinces. The United States appealed this decision to the Appellate Body.

Neither appeal has been heard because the Appellate Body is not currently functioning.

In November 2017, Canada requested [subscription only] the establishment of a dispute-settlement panel under Chapter 19 of NAFTA concerning the CVDs, with a similar request made the next month regarding the ADs.

The September 2019 NAFTA panel report [subscription only] concluded that the ITC had erred in the methodology and data used to determine that the U.S. softwood lumber sector was injured by Canadian imports, and it ordered the ITC to re-evaluate its data.

In December 2020, Canada filed a request under Chapter 10 of CUSMA, which provides a binational mechanism for reviewing ADs and CVDs.

Following the November 2021 DoC announcement of a doubling of tariff rates, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, speculated about retaliatory measures. The Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, noted the actions under way at the WTO and pursuant to CUSMA.

Canada’s Forest Sector, Communities and Employment

In 2019, the forest sector contributed $23.7 billion to Canada’s nominal GDP and had exports valued at $33.2 billion, of which 24% – or $8.1 billion – was softwood lumber. Canada’s forest sector is affected by trade disputes, fluctuating prices and natural disasters, among other factors.

In 2020, the value of Canadian softwood lumber exports to the United States – the largest market for such goods – was $10.1 billion. As shown in Figure 2, British Columbia is Canada’s largest softwood lumber exporter to the United States.

Figure 2 – Share of Total Softwood Lumber Exports to the United States, By Selected Provinces, October 2020 to October 2021

This figure is a bar graph that shows the share of total Canadian softwood lumber exports to the United States by selected Canadian provinces, from October 2020 to October 2021. British Columbia (47.7%) was Canada’s largest softwood lumber exporter to the United States in that period, followed by Quebec (19.6%); Alberta (13.5%); Ontario (9.4%); New Brunswick (6.8%); Nova Scotia (1.7%); Saskatchewan (1.1%); Newfoundland and Labrador (0.3%); and Manitoba (0.1%).

Source: Figure prepared by the Library of Parliament using data obtained from Government of Canada, Canadian total exports,” Trade Data Online, Database, accessed 7 December 2021.

According to the Forest Products Association of Canada (FPAC), Canada’s forest sector operates in more than 600 communities, and provides 230,000 direct jobs and more than 600,000 indirect jobs in rural, remote and Indigenous communities. There are more than 1,400 Indigenous-owned businesses in the country’s forest sector.

In its report entitled The State of Canada’s Forests, Natural Resources Canada states that about 17% of Canada’s forest sector workers are women, 12% are immigrants, 9% are racialized persons and 7% are Indigenous people.

With a labour shortage and thousands of unfilled jobs, there are opportunities to expand and diversify the workforce in Canada’s forest sector. Funded by Women and Gender Equality Canada and FPAC, the Gender Equity in Canada’s Forest Sector Initiative was launched in 2018. The initiative is Canada’s first public–private partnership concerning gender equity in the forest sector.

Conclusion

The Canada–U.S. softwood lumber dispute is ongoing. Since 2017, an estimated $5.6 billion in duties have been collected from Canadian softwood lumber producers.

As a result, Canada’s forest sector is relatively less able to make capital and other investments, hire workers, undertake product research and innovation, and focus on enhancing exports.

Authors: Joanne Markle LaMontagne and Offah Obale, Library of Parliament



Categories: Agriculture, Environment and Natural Resources, Industry and Trade, International Affairs and Defence

Tags: , , , , , ,

%d bloggers like this: