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Wednesday, October 31, 2012

Softwood Lumber Imports From Canada: Current Issues

Katie Hoover
Analyst in Natural Resources Policy

Ian F. Fergusson
Specialist in International Trade and Finance

Softwood lumber imports from Canada have been of concern to Congress for many years. Under the Constitution, Congress has the power to regulate interstate commerce and exercises authority over trade relations with foreign nations. Lumber production is a significant industry in many states, and U.S. lumber producers are concerned they are at an unfair competitive disadvantage in the domestic market against Canadian lumber producers because of Canada’s timber pricing policies. This has resulted in four major disputes (so-called “lumber wars”) between the United States and Canada since the 1980s. The last major dispute was resolved when the 2006 Softwood Lumber Agreement (SLA) was signed. Under the agreement, Canadian softwood lumber shipped to the United States is subject to export charges and quota limitations when the price of U.S. softwood products falls below a certain level.

Tension between the United States and Canada over softwood lumber trading has been persistent and may be inevitable. Both countries have extensive forest resources, but they have quite different population levels and development pressures. Vast stretches of Canada are still largely undeveloped, while relatively fewer areas in the United States (outside Alaska) remain undeveloped. These differences have led to different forest policies.

For decades, U.S. lumber producers have argued that they have been injured by subsidies to their Canadian competitors in the form of lost market share and lost revenue. In the United States, the majority of the timberlands are privately owned and prices are determined by competitive bidding in an open market. In Canada, the majority of the timberlands are owned by the provincial governments and leased to private firms. The provinces administratively set the price of timber through a stumpage fee, a per unit volume fee charged for the right to harvest trees. Some assert that the stumpage fees charged by the Canadian provinces are subsidized, or priced at less than their market value. Directly comparing Canadian and U.S. lumber prices is difficult and often inconclusive, however, due to major differences in tree species, sizes, and grades; measurement systems; requirements for harvesters; environmental protection; and other factors.

Three recent developments in the softwood lumber trade relationship between the United States and Canada may be of interest to Congress. First, in January 2012, the United States and Canada extended the 2006 SLA for another two years until October 2015. Second, an unfavorable arbitration decision under the dispute resolution terms in the SLA may have shifted the negotiation priorities for the U.S. lumber industry. Third, Canada has joined in the negotiations for the Trans-Pacific Partnership (TPP) Agreement, an effort to develop a free-trade agreement with nine countries across the Asia-Pacific. How this will effect the negotiations for the SLA and the softwood lumber trade between the United States and Canada remains to be seen. Congress may consider legislation or oversight on these issues.

Date of Report: October 23, 2012
Number of Pages: 26
Order Number: R42789
Price: $29.95

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