Why we can't seem to solve the softwood dispute for good

By Justin Ling April 27, 201727 April 2017

Why we can't seem to solve the softwood dispute for good

 

How many softwood lumber disputes is it going to take before Canada gets a long-term deal with the U.S.?

This last week appears to have been the beginning of Lumber V, the fifth incarnation of a long-standing trade dispute that has taken place on the margins of NAFTA, wherein Washington has consistently insisted that Ottawa has dumped subsidized lumber into its market. Trade tribunals — even America’s own internal trade authorities — have sided with Canada.

Indeed, past disputes have wound up before arbitration, and led to agreements that have cooled cross-border sniping on the file. Now the two countries have been without a deal since 2015.

And while Prime Minister Justin Trudeau had marathon talks to try and get a deal to pre-empt Lumber V, none came (according to one former U.S. trade representative, Canada was close to sealing one with the Obama administration, but decided to hold out for better terms with his successor). And, as such, President Donald Trump has picked up the mantle.

The core of the dispute revolves around what is, exactly, a subsidy.

America contends that having Crown-owned companies logging on Crown-owned land amounts to government assistance. Canada, largely, disagrees.

This time around the Trump administration has concluded that the Canadian lumber industry has caused a direct and provable harm to the American forestry sector, and therefore issued border taxes to directly offset that law — a countervailing tariff.

Trump announce that the tariff would be set at roughly 20 per cent, and would be applied to various Canadian lumber companies at varying rates, retroactive to three months, immediately, while they finalize the results of an investigation into dumping.

The initial findings of a U.S. Commerce Department investigation found evidence that some Canadian companies had been dumping lumber at reduced prices in America.

Two schools of thought govern Trump’s aggressive trade moves: One, it’s merely another round of an ongoing saga, with little — but tone — changing. The second is that Trump is making a calculated ploy to twist Canada’s arm into putting a lumber agreement in NAFTA itself, just as the two parties ready to return to the table to open up the massive trade deal.

From the outset, trade lawyer Brenda Swick is skeptical that softwood would wind up in a Trump-approved NAFTA.

“It may be possible, it will require tremendous negotiation,” says Swick, a partner at Dickinson Wright in Toronto who has served as an expert arbitrator under NAFTA Chapter 19. “I guess you could have a special chapter for it, just as you have special chapters for energy and financial services.”

But, ultimately, Swick says Lumber V might not be that different than its prequels.

“This dispute would have occurred regardless of which administration was in power,” she told CBA National. And any impression that Trudeau and Obama were close to a deal was likely illusion, she says. “I don’t think the parties were close, ever, since the last agreement expired.” After all, it’s the companies who negotiate agreements, not governments.

The pattern always plays out the way: A stream of litigation, followed by a negotiated settlement.

What is unique this time around, Swick says, was the retroactive penalty for most of the softwood lumber companies. She adds that New Brunswick companies were also penalized under Trump’s recent moves — unusual, because they log on mostly private lands and have been excluded from the trade wars.

And even if we’ve seen this game played before, there’s no guarantee the outcome will be the same. “I don’t think a past win is a certain predictor for a future win,” Swick says.

The big question on the table is whether the lumber market has shifted significantly since Lumber IV. For example, Canada’s claim has long been that there is insufficient supply in the U.S. market, which necessitates Canadian imports. That means dumping, and trying to undercut competition, is largely impossible.

If the Americans can prove there is ample supply in America, and that Canada is displacing it, they may have a case.

There is, of course, the possibility that the two sides — perhaps with this threat of a 20 per cent border tax, which could spell thousands of layoffs, hanging overhead — could come to a deal and pre-empt litigation.

“Hope springs eternal,” Swick says. “But we certainly haven’t been able to do that in the past, simply because the two countries have such different ways that they operate and regulate their industries.”

Most Canadian companies can’t abide by an import quota, which is what the Americans have been clamouring for. That may quickly come off the table.

And goodwill on this file might require goodwill elsewhere.

President Trump has been sabre rattling on trade in advance of serving formal notification to Canada for the NAFTA talks — which requires 90 days notice. He has, however, supposedly drafted an executive order announcing America’s withdrawal from the deal, which requires six months notice before taking effect.

Trump has already taken issue with Canadian efforts to push out American-made, tariff-free ultra-filtered milk from its domestic, supply managed, market.

Meanwhile, Canada has slapped a 276 percent tariff on gypsum drywall after a trade tribunal found U.S. industry dumped American-made drywall at lower rates.

The trade war is just beginning.

 

Photo licensed under Creative Commons by oinonio

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