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The Canada-U.S. Softwood Lumber Agreement - Backgrounder
Introduction
Over the past 25 years, the United States lumber industry has frequently sought U.S. government restrictions on Canadian softwood lumber imports through the application of U.S. countervailing duty and antidumping laws – laws that allow the imposition of import duties when a U.S. industry is allegedly harmed by subsidies in the exporting country (countervailing duties), or when a U.S. industry is allegedly harmed by imported products sold at prices that are lower than the cost of production (dumping).
Canada has successfully challenged these U.S. actions under the dispute resolution provisions of the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA), but the harm caused while the challenges were under way, as well as the time and cost involved in such challenges, has resulted in agreements with the United States that: (1) provided for Canada to apply charges and/or volume restraints on Canadian softwood lumber exports to the United States and (2) prohibited the United States from launching any new cases under its countervailing and antidumping laws.
The most recent agreement, the Canada-U.S. Softwood Lumber Agreement 2006 (SLA), returned more than $5 billion in duty deposits to Canadian companies and included provisions that have promoted stable and predictable access to the U.S. market. This measure of stability and predictability has been valuable to Canadian exporters and forest-dependent communities during the recent period of unprecedented challenges in the Canadian forest sector. With the strong support of industry and provinces, Canada and the United States agreed, in January 2012, to extend the Agreement from its original seven years to October, 2015. Canada has agreed to consult with the United States before that expiry date with respect to whether a further extension would be appropriate.
Border Measures
Canadian softwood lumber producers who export lumber manufactured in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario or Quebec to the United States pay an export charge when the price of lumber is at or below US$355 per thousand board feet (MBF). This charge is expressed as a percentage of the price of the product being exported, with any exports valued at more than US$500 MBF being treated as if the value were no more than US$500 MBF. Export charge revenues collected by the Government of Canada are distributed to the provinces, minus costs associated with SLA implementation and administration.
There are two border measures available, and the regions (B.C. Coast, B.C. Interior, Alberta, Saskatchewan, Manitoba, Ontario and Quebec) were invited to choose the option that best met their needs. Each region can choose to switch option once every three years.
- Option A: an export charge, with the charge varying with the “prevailing monthly price” as prescribed in the SLA. If a region under this option exceeds its export volume threshold by more than 1 % in any given month, all exports in that month are subject to a retroactive additional export charge, equal to 50% of that month's export charge rate (the "surge mechanism").
- Option B: an export charge that is lower than the Option A charge and is combined with a volume restraint (“quota”), where both the rate and the volume restraint vary with the prevailing monthly price.
| Prevailing monthly price per thousand board feet | Option A – Export Charge (%) | Option B – Export Charge plus Volume Restraint |
|---|---|---|
| Over US $355 | 0 | 0 |
| US $336-355 | 5 | 2.5% + regional share of 34% of U.S. Consumption |
| US $316-335 | 10 | 3% + regional share of 32% of U.S. Consumption |
| US $315 or under | 15 | 5% + regional share of 30% of U.S. Consumption |
B.C. Coast, B.C. Interior and Alberta initially chose Option A while Saskatchewan, Manitoba, Ontario and Quebec chose Option B. To date, all regions have retained their original options.
Third-Country Adjustment Mechanism
To preserve Canada's share of the U.S. market and to address increases in third-country share of the U.S. market, the SLA allows the Government of Canada to retroactively refund export charges (up to the equivalent of a 5 percent charge) if all of the following circumstances occur in two consecutive quarters when compared to the same two consecutive quarters in the preceding year:
- third-country share of the U.S. market increases by 20 percent
- Canadian market share decreases and
- U.S. domestic producers' market share increases.
This provision does not apply to any region that has triggered the surge mechanism in either of the two consecutive quarters.
Exclusions
Border measures do not apply to softwood lumber exports that are:
- produced in the Atlantic provinces from logs harvested in New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland or the State of Maine, the origin of which is certified under the Maritime Lumber Bureau Certificate of Origin;
- from logs harvested and produced in the Yukon, Northwest Territories or Nunavut; and
- from 32 companies previously found by U.S. authorities not to benefit from alleged subsidies (3 Ontario companies and 29 Quebec companies).
Other Provisions
In addition to the border measures explained above, the SLA includes the following provisions:
- full protection of the provinces' right to properly manage their forest resources;
- no anti-dumping or countervailing duty investigations on Canadian softwood lumber exports to the United States for the duration of the SLA;
- agreement that the parties will take no actions to circumvent SLA commitments;
- a final and binding dispute settlement process;
- agreement to work to develop criteria for determining whether a region's timber pricing and forest management systems should be exempted from border measures;
- initiatives to enhance bi-national cooperation and the development of the North American lumber industry;
- a 12-month standstill on U.S. trade remedy actions when the SLA expires; and
- provision for either party to terminate the SLA prior to its expiry by giving six months' notice. The SLA requires a 12-month standstill on trade remedy action should either party terminate the Agreement.
