No matter how you slice it, we’re headed toward a lumber fight

By mid-October, the U.S. Lumber Coalition — a.k.a. The Coalition to those who have spent their lives in the trenches of softwood lumber battles — will be able to file new anti-dumping and countervailing duty complaints against Canadian softwood lumber exports. Unless a replacement for the 2006 Softwood Lumber Agreement can be negotiated in the next few months, it’s a pretty safe bet that Lumber V will be launched.

These perennial disputes feature extremely disruptive punitive U.S. duties. When Canadian exporters are threatened with the full force of U.S. trade remedy laws most Canadian stakeholders opt for the “least worst” option: a government-to-government agreement to buy off The Coalition. Canada’s attachment to the rules-based international trading system will be abandoned in favour of managed trade agreements that buy peace – at least until the next time.

A new agreement — SLA 5, if you’re counting — will not be possible unless The Coalition’s numbers are right for it to launch a complaint. In addition, Canadian lumber interests — especially the provinces — must agree on how they would prefer to be skewered this time. It’s pretty clear to everyone that Ontario and Quebec are not on the same page as British Columbia.

How should exports be regulated under SLA 5? British Colombia prefers export taxes so that duties (based on alleged stumpage subsidies) go into its own coffers rather than the U.S. Treasury. Is this a silver lining? Would it help to explain Premier Christy Clark’s public demands for a quick negotiated solution?

Canada-U.S. lumber disputes are mainly about “stumpage” – the fee the provinces charge for harvesting standing timber on Crown lands. Coalition members claim Canadian stumpage charges are too low, which means they are lower than the U.S., where the timber is harvested on lands owned by private companies. Compounding The Coalition’s complaints is a B.C. prohibition on whole-log exports which prevents U.S. lumber mills from buying less expensive Canadian logs and milling them in their U.S. operations.

Ontario and Quebec have reformed their stumpage regimes since the 2006 SLA entered into force...

Industry consensus on the need for another SLA has been elusive...

The Coalition was pleased to see the end of the 2006 SLA. It did not work well for them. Cross border lumber wars are always fiercely fought. Trade remedies (anti-dumping and countervailing duties) have provided quick and effective relief for the Coalition — and the nightmares for the Canadian lumber producers. The Coalition has little incentive to settle for an agreement less effective than successful AD/CVD litigation.

...Some producers in Central Canada are confident stumpage reforms have eliminated subsidies and that the soft Canadian dollar will minimize dumping margins. Resolute is gearing up for a fight. Others too must be prepared. Hoping the problem will go away is neither a sound nor a prudent business strategy.

The legal fees will be mind-boggling, which is part of the problem. For them, litigation is far more lucrative than settling. But costs may also help to drive the solution. The relative peace of the SLA period has saved industry on both sides of the border hundreds of millions in legal fees. Neither side wants a bad deal, but there is also a premium value to be placed on certainty.

If the remedy duties are diluted or eliminated, The Coalition will have gambled and lost. But trade litigation is a means to an end. Canadian exporters want and need to limit disruption to trade. For The Coalition, an agreement can bring relief without the risk of remedies being overturned by dispute settlement under NAFTA or the WTO.

...as Canada’s provinces struggle to get on the same page, it’s vital to remember that delays and uncertainty always favours The Coalition. And because of this, notwithstanding the best efforts of both federal governments, Canadians need to brace themselves to deal with litigation before a settlement is reached.

This has been written by Peter Clark, international trade strategists, for the 15 May 2016 edition of iPolitics.ca.