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The Softwood Lumber Dispute: A Beginner’s Guide

Forestry is one of the major cornerstones of the Canadian economy. Canada is home to 10% of the world’s forested land and is the second-largest exporter of forestry goods, which has contributed to the nation having the highest forest trade balance in the world. In short, forestry is an integral part of Canada’s economy and provides its people with thousands of jobs.

In 2016, Statistics Canada reported that the foresting industry created $19.8 billion in revenue, roughly 70% of which came from sales of softwood lumber to the United States. These facts provide basic context of the urgency of the Trudeau government in light of the Trump administration’s lofty tariffs on Canadian lumber. A significant rise in the price of Canadian lumber in U.S markets would cause a steep decline in demand, thus losing billions of dollars of revenue for the Canadian economy.

Though this crisis seems rather sudden, this is anything but a sleeper issue. It dates back over 20 years ago. Due to contrasting structures of the foresting industry in neighbouring countries, Canadian lumber is typically less expensive than its American competitors, much to the chagrin of American foresters. 90% of Canadian forests are owned by the Canadian government, in order to better regulate logging practices.

Canadian provinces lease their land to foresting companies and use a variety of administrative tools to determine ‘stumpage fees’ for the right to harvest the wood. These fees can vary from province to province. South of the border, however, 70% of all forested land is privately owned, thus individual owners desire to create profit, increasing the cost of foresting on that land.

These structural differences result in Canadian lumber being much cheaper than American lumber, which has caused American foresters to accuse the Canadian government of unfairly subsidizing the lumber industry and dumping their subsidized products in the American government, thus flushing out local producers. The Canadian government denies all wrongdoing. However, this has sparked an ongoing debate about the necessity of protectionist measures against Canada’s perceived predatory pricing of their products.

Though protecting one’s local economy should be a priority of a sitting government, this goal must be balanced with ensuring the continued relative prosperity of their second largest trading partner. Canadians will lose thousands of jobs and the industry itself could lose billions of dollars in revenue if tariffs are increased to rates of up to 24%.

This, in turn, would not only weaken Canada’s economy but would reduce her buying power, ultimately hurting American exports. A federal government’s need to prioritize their nations’ economy balanced with the importance of ensuring one’s trading partners remain strong is wherein the necessity of the North American Free Trade Agreement lies.

NAFTA panels have repeatedly agreed that though the Canadian forestry industry does allow Canadian foresters to harvest their products at a reduced rate, however, the value of these supposed subsidies as calculated by the United States was deemed inaccurate and they were ordered in 1996 and again in 2004 to recalculate their estimates. The trade agreement has protected Canada from facing the brunt of the heat of the American lumber industry, but if Trump’s aggressive ‘America-first’ policy is allowed to prevail in the upcoming NAFTA talks, our country could lose billions.

“Softwood lumber [is an] explosive issue [that is] too big, too complex and too emotional [to overlap] with NAFTA talks.”

Raymond Chretien, in comments quoted by the Huffington Post

Trump’s imposed tariffs expire on the 2nd of September, therefore there is a window of opportunity for the Canadian government to negotiate with the White House before the official renegotiation of the agreement, for a solution to the dispute that is more favourable to Canadian interests.

It would be difficult for the Canadian government to negotiate the sensitive softwood lumber dispute, simultaneously with the official NAFTA renegotiations, former Canadian ambassador to the US, Raymond Chretien has noted, due to the sensitivity of the issue. The Canadian government may have a chance in the month of August to come to a compromise but they must learn from past mistakes.

Attempts to negotiate in 2002, 2003 and 2004 displayed the vastly different expectations of the two governments with Americans proposing tariffs of approximately 37% whilst the Canadians urged for much lower tariffs that were up to and including 10%. Though Trudeau’s government should not mirror the aggression of the American president’s stance on the manner, he should remain firm and refuse to appease a bully’s demands. Canada has as much right as the United States does to protect her economy and that she must do.

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