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Hillwatch Report on Softwood Lumber

By Michael Teeter, Principal
January 2002

There is legitimate indignation associated with recent U.S. industry and government actions as the current Softwood Lumber Agreement expires. This indignation is legitimate because Canadians have expectations of free trade given the protections afforded us under NAFTA, NAFTA’s FTA predecessor and the WTO (GATT) framework (which provides the authority for these area agreements.)

Missing from this sentiment is an understanding of trade policy and trade instruments and the common application of these instruments.

First, a domestic industry's use of national contingency protection legislation (based on internationally-agreed rules) is legitimate. Canadian industries use our own dumping and countervail legislation from time to time to erect trade barriers on the grounds that products are dumped and/or subsidized and domestic industry is injured.  In recent years, Canadian cases have involved steel, footwear, and some processed agricultural products. 

The U.S. lumber industry's petition for countervailing and dumping duties is entirely consistent with international trade law.

Another thing we often forget is that managed trade is not altogether foreign to Canada. We carefully manage foreign imports of agricultural products, textiles and apparel, defense products, steel, and even some forest products, including logs. Conversely, managed trade between Canada and the U.S. now exists for Canadian textiles and apparel, grain and other agricultural and food products and many defense products.

Managed trade is certainly not foreign to the United States. Voluntary Restraint Agreements (VRA) have existed on many products with many U.S. trading partners.  Countries such as Japan have been subject to these agreements for decades. In instances where industry sectors have been governed by VRA's, there is an ironic stability to sectoral trade that some would argue is healthy and consistent with national and even international objectives.

The question of whether Canadians subsidize the harvesting of forest products boils down to one point: We do things differently than Americans do. Being different is not a problem in itself. It becomes a problem when a Canadian industry has significant and growing market share in the host market, and when the US domestic industry feels it is hurt by this development.

Sometimes having different systems means that questions around fair and free trade are difficult to answer. What is fair and free to one party may be unfair and not free to another. Additionally, we cannot ignore the fact that large customer markets more easily imposes trade restrictions, particularly when the overall balance of trade favours the exporting country (as it does in this case). 

It is precisely the questions involving different systems that the Civil Society Groups, so engaged in international trade issues today, are attempting to confront. What they are saying is that sometimes being different is OK and it is legitimate for nations to be different and to erect different rules. It is the homogenization of nations, the legitimization of common global brands, and the erosion of national and sub-national sovereignty that they object to.

It is not insignificant that many non-governmental organizations support the U.S. lumber industry actions. While the driving issue is environmental, the secondary issue is related to trade. The NGO's support restraints on trade if these restraints support environmental objectives.

It is within this jumble of converging and diverging interests that the Canadian lumber industry and the Canadian government are saying: Let's have free trade and damn the consequences.

The facts are: the systems are very different; the rules are being used in the way they were designed; civil society groups may increasingly converge with U.S. lumber interests.

At the end of the day, people on all sides of the issue will be forced to think about Managed Trade Regimes, their benefits and their costs. There are many options to consider. Some managed trade regimes are much better than others. Our ability to deliver on the best option frequently depends on our negotiating savvy and timing. Canada should be considering these strategies sooner rather than later.

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