On June 30, 2016, Prime Minister Justin Trudeau and President Obama issued a Joint Statement on Softwood Lumber. This is a historic/ongoing trade irritant that could escalate into a trade war on October 12, 2016.
After October 13, 2016, the United States may initiate new antidumping and countervailing duty investigations against softwood lumber from Canada. Canadian producers and exporters will face voluminous production requirements in terms of information.
The Canadian Government and provincial governments will have to devote thousands of hours in gathering information on alleged subsidy programs for the United States Department of Commerce. Litigation will take years and tens of millions of dollars to resolve. This is why Canada is willing to enter into a Softwood Lumber Agreement rather than waiting for the World Trade Organization to issue decisions on Canada’s compliance with international trade obligations.
In the Joint Statement on Softwood Lumber, the following information was provided:
- On March 10, 2016, we instructed the United States Trade Representative and the Canadian Minister of International Trade to intensively explore all options and report back on the key features that would address the issue;
- Canadian and US negotiating teams have been meeting diligently on softwood lumber over the past three months;
- The U.S. and Canadian federal governments have made significant advances in understanding our industries’ sensitivities and priorities since March; and
- The United States and Canada are working together to find a path forward that reflects our shared goals and that results in durable and equitable solutions for softwood lumber producers from both countries.
The Joint Statement on Softwood Lumber also indicates what has been discussed in terms of what a new Softwood Lumber Agreement will look like in terms of key features:
- An appropriate structure, designed to maintain Canadian exports at or below an agreed U.S. market share to be negotiated, with the stability, consistency and flexibility necessary to achieve the confidence of both industries;
- Provisions for region or company exclusions if justified;
- Provisions promoting regional policies that eliminate the underlying causes of trade frictions, including a regional exit process that is meaningful, effective and timely, recognizing that should an exit be granted, it would be reversible if the circumstances justifying the exit change;
- Provisions to ensure information collection and exchange to create meaningful transparency;
- Institutional arrangements to administer the agreement;
- Effective enforcement tools that are neutral, transparent, binding, expeditious, and well-timed to address concerns as they arise;
- Associated commitments regarding the use of trade remedies;
- Provisions for appropriate duration and flexibility to anticipate and adapt to a range of market situations, industry innovations, and shifting demand patterns;
- Provisions to address other issues, such as product scope, re-manufacturers and joint market development.
The division of market share is the key sticking point that is mentioned in the Joint Statement on Softwood Lumber. Obviously, the United States producers want Canadian producers to have as low a number of possible and Canadian exporters would like the number to be higher. It is worth noting that Chapter 3 of NAFTA prohibits quantitative restrictions. A quota on exports or a limit on market share for Canadian goods in the United States is a quantitative restriction. Quantitative restrictions are permissible after a successful safeguard case – however, the U.S. lumber producers would have to prove a surge and serious injury (a higher level of injury than an antidumping or countervailing duty case).
A set market share is a big change from what was in the now expired Softwood Lumber Agreement. What is proposed this time is worse for Canadians. Whether this issue can be resolved by October 12th is yet to be seen.