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Canada-U.S. Softwood Lumber Agreement 2017: Overview, Impact, and Prospects
After years of disputes, negotiations, and litigation, the Canada-U.S. softwood lumber trade relationship reached a new phase in 2017 with the signing of a new agreement. The agreement, known as the Canada-U.S. Softwood Lumber Agreement 2017 (SLA 2017), replaced the previous one that expired in October 2015 and failed to resolve the long-standing issues of pricing, export restrictions, and arbitration. This article examines the key features, consequences, and challenges of SLA 2017 for the Canadian and U.S. forest industries, consumers, and governments.
Background
Softwood lumber refers to wood products that come from coniferous trees, such as spruce, pine, and fir, and are used for construction, furniture, pulp, and paper. Canada is the largest exporter of softwood lumber to the U.S., accounting for about a third of the U.S. market, while the U.S. is the largest importer of Canadian softwood lumber, providing about 70% of the Canadian market. The two countries have been engaged in a series of trade disputes over softwood lumber since the 1980s, due to the different pricing systems, subsidies, and regulations for the industry. The most recent dispute started in 2016, when the U.S. imposed duties on Canadian softwood lumber imports, alleging unfair subsidies and dumping.
Key Features
SLA 2017 has several key features that aim to address the concerns and interests of both parties. The main provisions are:
– A quota system that limits the volume of Canadian softwood lumber exports to the U.S. to about 28% of the market, based on average market share over the past three years, with the excess subject to export taxes or fees.
– A price-based mechanism that sets minimum prices for Canadian softwood lumber exports, based on four product categories, and adjusts them every two years according to inflation and market conditions.
– A dispute resolution mechanism that allows for binding arbitration by a neutral panel, instead of litigation in U.S. courts, and includes a provision for anti-circumvention measures to prevent circumventing the agreement.
– A provision for a review of the agreement after five years, and for a possible extension for two years if both parties agree.
Impact
The impact of SLA 2017 on the softwood lumber industry and the economy as a whole is complex and uncertain. On the one hand, the agreement provides some stability and predictability for the industry, which has suffered from the volatility and uncertainty of the previous years. The quota system and the price-based mechanism may help Canadian exporters to maintain their market share and profitability, while the dispute resolution mechanism may reduce the legal costs and risks of both parties. The agreement also signals a positive signal of cooperation and compromise between the two countries, which have had a strained relationship under the Trump administration.
On the other hand, the agreement may also have some negative effects on the industry and the consumers. The quota system and the price-based mechanism may increase the prices of Canadian softwood lumber for U.S. buyers, which may affect the demand and competitiveness of Canadian exporters, especially in the face of other sources of competition, such as European and South American exporters. The export taxes or fees may also discourage Canadian exporters from shipping to the U.S. and seek other markets, which may reduce their overall revenue and production capacity. Moreover, the agreement may not address the structural challenges and opportunities of the softwood lumber industry, such as the digitalization, innovation, and sustainability of the products and the supply chains.
Prospects
The prospects of SLA 2017 depend on several factors, including the implementation, enforcement, and interpretation of the agreement, the evolution of the softwood lumber markets and technologies, the political and economic relations between Canada and the U.S., and the global trends and challenges of sustainability and climate change. The agreement may face some legal challenges or renegotiations from the industry, the provinces, or the federal governments in both countries, and may also be affected by the outcome of the U.S. presidential election in November 2020. However, the agreement may also provide a framework and a basis for the two countries to deepen their cooperation, manage their differences, and explore new opportunities for trade and innovation in the softwood lumber sector.
Conclusion
The Canada-U.S. Softwood Lumber Agreement 2017 is a significant development in the long and contentious history of the softwood lumber trade between the two countries. While the agreement has some merits and challenges, it represents a step towards a more stable and constructive relationship between two of the largest players in the global softwood lumber market. As the industry and the society continue to evolve and adapt, the agreement will need to be monitored, evaluated, and improved to ensure its effectiveness and relevance for the future.