What's Up With Softwood Lumber?

You're sitting on your back deck, comfy in your new outdoor furniture, admiring the beautiful fence that surrounds your property. If the deck, furniture and fence are made of wood, chances are you're a big consumer of softwood lumber. Look a little further and you may find even more evidence.

Softwood, from evergreens like pine, cedar and fir trees, may have been used to make the plywood in your house, or maybe your flooring, roofing, paneling or window frames.

Of course, the moniker may be a bit misleading. Softwood isn't really all that soft, unless you're comparing it to wood from those soaring, solid maple, oak, teak or walnut trees.

Softwood lumber has been in the headlines again recently, due in part to a new government in the U.S. and ahead of North American Free Trade Agreement (NAFTA) talks in Washington in mid-August. Here's a primer to help shed light on some of the issues surrounding the dispute.

Background

The current softwood lumber dispute is the fifth official conflict with the U.S. over the popular construction material since 1982. Why now? The last Softwood Lumber Agreement, reached in 2006, officially came to an end last year with the expiry of a one-year moratorium that prevented either side from taking legal action.

In April 2017, the U.S. moved to impose hefty countervailing duties, which generally are designed to combat what are considered imports of subsidized goods and products from other countries. More recently, at the end of June, the U.S. Department of Commerce tacked on preliminary anti-dumping duties, which are imposed on imports a country believes are priced below fair market value.

Breaking It Down

Most of Canada's softwood lumber production heads to the U.S., since producers there can't meet all of the local demand. Canada shipped $9 billion of softwood lumber products to the U.S. in 2016, according to RBC Economics, representing 2 per cent of total exports to the U.S. and around 0.4 per cent of Canada's gross domestic product. One-third of the lumber used in the U.S. in 2016 was imported, 95 per cent of it from Canada.

U.S. lumber producers claim their industry is being hurt by the imports coming from Canada, alleging the Canadian government provides unfair subsidies to their Canadian softwood lumber competitors. Here's a bit of the background:

• Most Canadian timber comes from trees on government-owned land. Governments charge producers to harvest the lumber, charges that are known as "stumpage fees."
• Most U.S. timber comes from trees on privately owned land. That means pricing is determined by market conditions, which can push charges higher than comparable ones in Canada.
• U.S. lumber producers contend that the government-set pricing in Canada represents an unfair subsidy to the softwood lumber industry in our country.
• The U.S. Department of Commerce generally agrees with the U.S. producers and their lobby group, the U.S. Lumber Coalition .
• In contrast, the World Trade Organization has generally determined that stumpage fees do not constitute a subsidy to Canadian producers.

Some Specifics

The U.S. countervailing duties introduced on Canadian imports of softwood lumber in April averaged roughly 20 per cent for most Canadian producers.

Two months later, on June 1, the Canadian government introduced an $867 million program to support the Canadian forestry industry. Our government says this program abides by international trade rules because the loans will be made on commercial terms. However, the U.S. Lumber Coalition called the support package a new government subsidy.

In the latest development, the U.S. added preliminary anti-dumping duties averaging nearly 7 per cent on some softwood lumber shipments from Canada.

What's Next?

Softwood lumber trade deals are negotiated separately from NAFTA, and some Canadian officials have said they hope to reach a new deal on softwood lumber before the NAFTA talks get underway. The first round of NAFTA discussions are scheduled for Aug. 16-20 in Washington.

Softwood lumber producers are part of Canada's broader forest industry, which encompasses solid wood product manufacturing, pulp and paper product manufacturing and forestry and logging. To research industry participants, a stock screener allows you to narrow your search by selecting Industry under the Basic Criteria tab, followed by Forestry & Wood Products.

Judy McKinnon contributed to this article.

*The title of this article was updated on September 26.